Law firm compliance news
March 2026
Welcome to the latest instalment of our law firm compliance update series. If there are areas of focus that you would like to see featured, please do let us know.
Consultations
Solicitor’s Regulation Authority (SRA)
The SRA have launched the next phase of consultation concerning client money in legal services, with two main areas of focus; accountant’s reports and concentrated role holding. The consultations closed in February, and we anticipate that the next steps will be published in the coming months. There is currently no indicative timeframe for when any changes will be implemented, but it’s important that firms remain alert to any changes. The current proposals include the potential introduction of fixed-charge penalties for non-compliance, including the late filing of an AR1.
In anticipation of the proposed changes, we would encourage firms to check that their reporting date for SRA AR purposes in the SRA portal reflects the period for which AR1s are prepared.
Accountant's reports
The 2025 spot checks identified non-compliance by around 10% of law firms reviewed, including not obtaining AR1s when not exempt and late filing of qualified AR1s or non-filing of qualified AR1s.
As such, the SRA are now consulting on:
Should all reports for non-exempt firms be filed whether qualified or unqualified? OR Should firms make a mandatory annual declaration that they have obtained or are exempt from obtaining an AR1? Or should reporting accountants submit reports directly to the SRA?
- Fixed financial penalties for late submissions or incomplete declarations.
- Updated guidance for reporting accountants to obtain bank confirmation letters.
- The previous suggestions to introduce mandatory rotation of reporting accountants have been dropped.
Compliance Officers Review
The SRA recently published the results of their Compliance Officers thematic review, which has highlighted the pressures faced by COFAs within firms. As part of the review, 25 firms were visited. During the visits, compliance policies, breach registers, and learning and development records were reviewed.
- 41% of firms were only maintaining partial records of decision-making by their compliance officers, with limited evidence of judgments or rationales being documented. We advocate the maintenance of a “judgments register” by compliance officers, which can be a useful management and compliance tool for firms.
- 44% of firms did not have a deputy compliance officer, whilst there is no formal role for deputies in the authorisation rules, appointing such an individual can prove a valuable resilience tool for firms, both in terms of business continuity in the event of compliance officer absence, and also as part of succession planning for firms, with deputies being able to step into the formal role in the future.
We would recommend that all COLPs and COFAs read the report, take steps to ensure compliance with the SRA’s requirements, and take guidance from the findings to enhance the compliance culture within their firms.
Litigation funding regulation
The government has now confirmed that it will introduce a regulatory framework for third-party litigation funding, following a Civil Justice Council (CJC) report.
The report made a number of recommendations, including the introduction of a light-touch regulatory regime. Whilst it is currently unclear as to when any changes will be introduced, it is important for firms that currently use, or are considering litigation funding schemes, to remain alert for any updates which may have an impact on operations. Read the complete CJC report.
Where firms are party to litigation funding arrangements, it is important that any specific requirements of the agreement, and any potential impact of the SRA ARs, are understood and correctly treated. For example, there may be specific requirements to hold monies in designated accounts, ringfenced office accounts or joint accounts. Each of these requirements would be covered by different SRA ARs, and an incorrect application of the agreement could result in a breach of the SRA ARs. Given the monetary amounts involved in some of these agreements, this could potentially constitute a serious, reportable breach if not dealt with appropriately.
Contact
