All law firms have to be “authorised and regulated” by the Solicitors Regulation Authority. The regulatory obligations can be split into two categories: those required to become authorised and those regulating ongoing conduct once authorised (the latter is considered in the section entitled Ongoing Regulation).
The SRA divides firms into “licensable bodies”, “legal services bodies” and “sole practitioners”. This site concentrates on the latter two; the former being an Alternative Business Structure, which adds a further layer of complexity. Within law firms the SRA further differentiates between owners, managers and non-managers and further still has created two regulatory offices which must be filled: the “Compliance Officer for Legal Practice” or COLP and the Compliance Officer for Finance and Administration” or COFA (the same person can undertake both roles if necessary). The SRA must approve the firm, each manager, each owner, the COLP and the COFA.
Applications are made to the SRA using forms FA1, FA2, FA3 and FA5. Understandably, the SRA requires a lot of information about the new firm and those to be involved in it. Form FA2 for example runs to 23 pages and the accompanying guidance notes cover another 12 pages. The SRA’s application process is run in five stages and takes around 2 months to complete. The current standard application fee is £800.
For further guidance from the SRA see: http://www.sra.org.uk/solicitors/firm-based-authorisation/authorisation-recognition.page
While the SRA regulates compliance, it looks to the firms themselves to police compliance. Firms are expected to do this through the two regulatory roles, the COLP and the COFA. The former is responsible for all legal compliance and the latter is responsible for all financial matters from client funds through to the viability of the business. Both office holders are required to set and enforce a culture of compliance and to note non-compliance, reporting material non-compliance to the SRA.
Criminals routinely target law firms in order to launder money, using ever more complex arrangements to deceive the authorities and clean the proceeds of crime. Law firms are required to understand the rules prohibiting money laundering, to identify all clients, to train those within the firm on how to comply and to set up a reporting structure: internally to the Money Laundering Reporting Officer and where necessary, externally to the National Crime Agency within the Police. There are criminal sanctions for non-compliance and there have been a number of high profile cases of solicitors who have faced the full force of the law for failure to comply with the rules against money laundering.
The rules on anti-money laundering look set to change in 2016 with the introductions of the Fourth Money Laundering Directive which will require registers of beneficial owners to be kept.
There is an alternative solution if you seek all the flexibility and freedom of setting up your own law firm but wish to avoid the investment inherent in setting up.