The SRA rules already make it clear that you need to have a system in place to record any failures in compliance so that you can monitor overall compliance with the firm’s obligations and assess the effectiveness of its arrangements and systems.

A common question from compliance officers is what constitutes a material breach. In considering whether a failure or breach is material, you will need to take account of various factors such as:

• the detriment, or risk of detriment, to clients;
• the risk of loss of confidence in the firm or in the provision of legal services;
• the scale of the issue; and
• the overall impact on the practice, clients and third parties.

However, in your compliance officer role, you need to decide whether to report breaches as material, if they form a pattern of breaches. The SRA has recently provided some examples of reports it has received from a number of compliance officers. In one example, the firm’s COFA reported a number of SRA Accounts Rules breaches arising from four matters dealt with in the probate department. It was argued that none of the breaches, in isolation, were material.

However, taken as a pattern, the SRA deemed the breaches are material.

They all arose from work undertaken in the probate department, and with three different breaches occurring over a short period of time, it suggests a lack of awareness and compliance with the SRA Accounts Rules, particularly in probate matters.

In summary, three different breaches occurring over a short period of time in one department is a pattern and therefore a material breach and needs to be reported as such. 

Breaches which are material—either in themselves or because of a pattern—must be reported to the SRA as soon as reasonably practical. In most cases, that should mean immediately.

If you would like to discuss any information contained in this update, or any specific concerns with your COFA compliance plan you can speak to us in confidence and without obligation.

David Thorpe

Director at Financial Eye

May 2014