Living the Eye Life! – September 2025
There have been a couple of attempts by the SRA to define the role and responsibilities of the COFA over the past fourteen years. First in 2011 and more recently in 2019. Both, in my opinion, have been missed opportunities. More of which I’ll come to later. Given the main responsibilities of the COFA, the debate has always centred on who should the COFA be. This in not surprising when you consider that these can be boiled down to just three things which are
Taking all the necessary steps to ensure that the firm and its employees comply with the SRA Accounts Rules – all thirteen of them!
Implementing such systems and controls as are necessary to ensure compliance with the SRA Standards and Regulations
Where evidence of failures to comply with the Accounts Rules has been identified, to report such breaches to the SRA
I can well remember reviewing all of this at the time and thinking there is no mention of assessing the firm for financial viability and no specific requirement for the COFA to report such a concern. Buried somewhere in the Standards and Regulations is a responsibility of all managers to ensure that the firm has the necessary systems and controls in place to minimise the risk of business failure but that’s about it.
So returning to the earlier question as to who the COFA should be, currently it’s pretty much anyone who has a good understanding of the thirteen Accounts Rules that govern the operation of the client account. But that’s it. What it isn’t is somebody who produces timely management accounts including cash flow forecasts and who has a legal responsibility to report any concerns concerning financial viability directly to the SRA.
There have been many recent documented failures of law firms getting into financial difficulties and ultimately failing. This has serious consequences for both clients and employees and further implications for those responsible for regulating law firms. Surely the time has arrived for taking a different approach and by that, I mean by shifting the burden of reporting concerns in respect of financial viability directly onto the COFA. That would be a game changer.
So what would this look like in practice? There is no doubt it would fundamentally change the way a firm’s finance departments is set up. And it would require additional funding for the support staff that would be required to assist the COFA in performing their new role. It would also impact on the relationship between the firm’s managing partner and COLP. By this I mean it would inevitably create some tension within the management team, but this should ultimately lead to a much better run firm which has one eye on the bottom line at all times as well as ensuring the firm has the necessary systems and controls in place to prevent fraud.
It would also be better for clients as it would help introduce another layer of scrutiny in the way the client account is operated. In too many cases where client money has been stolen, the managing partner has been able to withdraw money from client account with nobody of any seniority being involved in authorising the payments.
If this all sounds a little far-fetched, it’s worth remembering that the regulator is going to have to come up with some regulations that have some actual teeth. There is only so much the reporting account can do to assist as they are not involved in the day to day running of the business. It will be too late in the day before they can identify the kind of issues that lead to failure. They will also be reluctant to take on the liability that comes with that responsibility.
And who would want to be a COFA with this additional obligation placed on them? Well only one that has the experience and expertise to undertake the role properly and effectively. They would also have to be remunerated appropriately. This would come as a bit of a shock to firms that have continuously under resourced their finance department.
It would also raise the bar when it came to recruiting a new COFA which in itself would lead to better qualified people coming into the legal sector. That surely is no bad thing if it leaves to fewer firms getting into financial difficulties. It would also mean that firms would be required to spend more time supporting its finance team through additional training which has to be a good thing. Given that it is estimated that there is approximately £30 billion of client account held in client accounts across the country at any one time, why would a regulator not want to put in place the sort of governance that would lead to greater protection?
For those of you reading this and might be thinking “great, more work for me for no additional pay” well, you may have a point. But anyone taking on such a new COFA role would have to be adequately remunerated or there would be no takers. They would also be inclined to hire the right sort of staff that would allow them to get on with their job.
One thing for sure is change is coming. The only question is when and how much. Keep watching this space…
David Thorpe
Director – Financial Eye