COLPs – do you really know what you’ve taken on?

The role of a COLP

The Law Society has said, ‘Compliance officers are a fundamental part of a practice's compliance and governance arrangements and they are instrumental in creating a culture of compliance throughout the firm’; the Solicitors Regulation Authority (SRA) sees these officers as the first line of defence in relation to protecting clients from harm.

A recent case showed how some compliance officers weren’t even aware they held such a role let alone understood what it entailed; the individual also said they didn’t know they had been a partner for two years and thought knowing the SRA rules was only necessary for the compliance officer role, which begs the question, how were they able to practice as a solicitor and say they were competent to do so!

In 2021 a solicitor was rebuked after admitting they didn’t know that they had been appointed a partner and a COLP until they received, as the main compliance contact, correspondence from the SRA!

But how do cases like this happen when you look at how the nomination/authorisation process works?

What do COLPs sign up to?

When a firm nominates someone to become a compliance officer they make the following declaration, so an individual saying they were ignorant of holding such an appointment is hard to understand:

In making this application on behalf of the Candidate:

• I confirm that I have read and understood the guidance
  
  
• The information in this application about the Candidate is correct and complete to the best of my knowledge and belief
  
  
• I confirm that I have the authority to make this application and the declarations on behalf of the Applicant Firm and the Candidate
  
  
• I have obtained the necessary consents from the Candidate for you to disclose to the Applicant Firm the results of any checks and any documents held in respect of the Candidate
  
  
• I confirm that I will notify you as soon as any information provided in this application changes
  
  
• I confirm that the Applicant Firm believes, on the basis of due and diligent enquiry, that the Candidate is a fit and proper person
  
  
• I confirm that the Candidate consents to their nomination

What are a COLPs responsibilities?

The SRA has said that compliance officers will not be used as ‘sacrificial lambs’ where there’s a lack of firm-wide compliance. However, while managers of a practice continue to bear the ultimate responsibility for a practice’s compliance; compliance officers may also personally face regulatory action where they fail to meet their responsibilities. 

This being the case, COLPs need to fully understand the areas that the role encompasses, and make sure they have the time, budget, resources and support to do it properly, especially as they are the compliance lead for their firms; this means that even if deputies or other officers are responsible for areas on a day-to-day basis, for example, anti-money laundering, the COLP remains ultimately responsible for compliance by the firm, with the partners being ultimately responsible for any non-compliance.

Here are just some of the areas COLPs may not realise they need to manage/oversee:

• Insurance distribution
• Data protection
• Confirming qualifying work experience
• Ethical conduct
• Climate change issues
• Financial stability
• Tax evasion/avoidance

How can COLPs protect themselves from personal liability?

In order to protect their positions many COLPs have indemnity agreements in place with their firms covering things like resourcing, decision making, etc.; some also have insurance policies in place to cover costs of defending themselves should regulatory action be taken. A word of warning though, a policy is normally taken out in the firm’s name, so if there was a dispute between the firm and the COLP around what they have done in the role, the policy may not cover the COLP as intended because they are not the policyholder.

Since the COLP roles came into being in 2013, a number of COLPs have been sanctioned for failing to carry out their roles properly, here are just a few of the more recent ones:

• Fined £10,000 for ignoring a warning letter from the SRA telling him not to use his client account as a banking facility, which he then did.
  
  
• Suspended for nine months after admitting multiple breaches of the anti-money laundering rules and allowing the client account to be used as a banking facility.
  
  
• Fined £25,000 for allowing his client account to be used as a banking facility and failing to make adequate identity checks.
  
  
• Fined £15,000 for providing banking facilities through his client account for a scheme promising investors a 1,000% return.
  
  
• Fined £10,000 for turning his practice into a “complete shambles” which was “akin to a slow-motion car crash occurring over a number of years”.
  
  
• Fined £2,000 for allowing their firm to take on work in areas where they had no experience and accepting client money when it did not have a client account.
  
  
• Fined £10,000 for touching a paralegal on the bottom and kissing her on the neck while sitting next to her in a bar.

During the webinar we asked if attendees thought COLPs should be rotated every 3-5 years, 57% said they thought they should be; rotation could avoid stagnation and potential ongoing negligence caused by the incumbent COLP not carrying out the role correctly.

The compliance officer regime is now ten years old and has not yet been subject to a specific thematic review to see how it is operating; when such a review has been suggested the SRA has said that it carries out indirect reviews via other thematic reviews, for example, AML, sanctions, competence, transparency, etc., and that because the COLP is responsible for these areas it can see whether things are operating as they should.

Compliance officer roles are clearly key for the protection of clients and the reputations of both the profession and individual firms, so understanding what they entail is critical; only once the full role is understood can COLPs feel confident they know what they need to do to become and remain compliant!