Compliance: material breaches

Answer

The Law Society has produced a practice note on compliance officers which states the following:

'When deciding if a breach, or series of breaches are material the COLP or COFA will need to consider:

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

It is important to note that while a single breach may be trivial, if it is a part of series then it may be material. For this reason, a compliance officer will need systems to identify patterns of breaches'.

What is 'material' will depend on the firm and the circumstances around possible failures to comply with the SRA Authorisation Rules, and the SRA will judge each case on its own merits. As set out above, factors such as the detriment or risk of detriment to clients, the scale of the issue and overall impact on the firm will need to be considered in deciding whether a failure is 'material'.

The nature of OFR means that it is unlikely that we will ever be able to develop any kind of criteria for what may be considered 'material' breaches. The COLP will need to keep appropriate records of all failures in compliance in order to monitor overall compliance with obligations and to assess the effectiveness of the firm's systems.

(The Law Society does, in time, hope to gather feedback both from the profession and the SRA which could be used to formulate guidance and examples of 'material' breaches.)

Please also note the recent SRA announcement that, subject to SRA board approval, the SRA Rules would be changed so that a firm's records of non-material breaches would not need to be reported annually to the SRA, although records will still need to be kept in order to support the identification and management of systemic risk issues.
Read the SRA announcement

COLPs may wish to take advantage of the Law Society's 'safe harbour' compliance initiative which is available through the Risk and Compliance Service.
More information on the service

View the Law Society's practice note on compliance officers