Welcome to the Latest Roundup
September proved to be one of the busiest months for regulatory news in recent memory. The SRA has paused the COLP and COFA separation, published a formal warning notice on AI misuse, and updated its Sectoral Risk Assessment. The Budget is approaching with two proposals that could materially affect firm finances. The Employment Rights Act 2025 changes take effect this month.
Below is a summary of what we published during September, an overview of the SRA’s updated risk assessment, and a round-up of wider regulatory developments that should be on your radar.
In this month’s roundup, we cover:
- What we published during September
- An overview of the SRA’s updated risk assessment, and
- A roundup of wider regulatory developments that should be on your radar.
Here’s a Reminder of Some of the Key Articles We Published
- SRA Pauses COLP and COFA Separation
On 30 September, the SRA confirmed it is pausing the implementation of the COLP and COFA separation rules that were due to take effect from January 2027. The regulator said it will consult on revised options. The rules have not been withdrawn, but the January deadline is no longer live. Our advice: the governance review is still worth doing, but there is no need to rush an FA2 application.
Read the full article
Client Account Interest and the Upcoming Budget: Two proposals could affect firm finances in the Autumn Budget on 28 October. The MoJ’s Interest on Lawyers’ Client Accounts Scheme would divert 75% of pooled client account interest and 50% of individual account interest to the government. The NatWest Legal Benchmarking Report found interest still commonly accounts for at least 20% of a firm’s trading surplus, and 11% of firms surveyed believe the scheme would lead to financial failure. A potential extension of employer NICs to LLPs remains unconfirmed.
Complaints as a Risk Signal
The SRA treats complaint patterns as supervision data. We explain what your nine-field complaint record reveals when read as a whole, what the regulator looks for in terms of volume, escalation rate and evidence of learning, and how to turn complaint data into management intelligence rather than filing it and forgetting about it.
Read the full article
The ICO Becomes the Information Commission
From 30 September 2026, the ICO formally became the Information Commission under the Data (Use and Access) Act 2025. The ICO name is staying, the regulator’s functions are unchanged, and statutory continuity provisions cover existing references. Privacy notices, client care letters and data protection policies should be updated at their next review.
Read the full article
High Court Rules SRA Cannot Compel Privileged Material
The High Court ruled in Carter-Ruck v SRA that section 44B of the Solicitors Act 1974 does not permit the SRA to compel production of documents covered by a client’s unwaived legal professional privilege. The SRA has said it disagrees and is seeking permission to appeal.
Read the full article
COLP and COFA Split: Growing Pushback
Before the pause was confirmed, we reported on the organised opposition from the SME & Boutique Law Firm Alliance and the Law Society’s call for the issue to be raised at its AGM on 14 October. Our view at the time, that the split may face scrutiny but preparation should continue, proved correct.
Read the full article
AML, Accounts and Cooperation Failures: Lessons from Recent SRA Cases
We examined four recent SRA decisions, including fines of up to £20,920, covering incomplete CMRA records, an inadequate firm-wide risk assessment treated as reckless, and a conflict of interest case. The common thread: recording matters as much as doing.
Read the full article
COLP and COFA Changes Approved: Practical Guidance
Our detailed guidance on the new rules before the pause: which firms were affected, what “unilateral” means, and the practical steps to take, including the FA2 application process. Still useful as background even though the implementation date has been paused.
Read the full article
Employment Law Changes Taking Effect in October 2026
The second phase of the Employment Rights Act 2025: the upgrade from “reasonable steps” to “all reasonable steps” to prevent sexual harassment, third-party harassment liability, tribunal time limits extended to six months, and trade union notice requirements. These are now in force.
Read the full article
SRA Sectoral Risk Assessment: What It Covers and Why It Matters
The SRA updated its Sectoral Risk Assessment on 6 August 2026. Under Regulation 18(2)(a) of the MLRs 2017, firms must take the SRA’s sectoral risk assessment into account when preparing their own firm-wide risk assessment. If your risk assessment does not reflect what the SRA has published, the two documents are out of step.
The updated assessment covers:
Established risks: Client risk (PEPs, sanctions, high-risk jurisdictions), transaction risk (conveyancing, client accounts, crypto assets including stablecoins and NFTs), delivery channel risk (remote onboarding, intermediaries, referral arrangements).
Emerging risks: AI-enabled fraud and deepfakes as an identity verification threat, particularly where firms rely on remote onboarding. Cyber-enabled fraud as a money laundering risk, with firms exposed both as a conduit for criminal funds and as a direct target of attack. Cash incentive, High Street shops have also been included as an emerging money laundering risk.
Sector-specific risks: Conveyancing remains the highest-risk area. Property transactions, client accounts, and the speed at which funds move through firms are all highlighted. The assessment reinforces that complaint handling, supervision, and training are indicators the SRA uses when assessing whether a firm’s controls are working.
We covered the technology and cyber sections in detail in SRA Highlights Cyber Crime and AI in Latest Risk Assessment and the crypto transaction risk in Crypto Assets and the SRA’s Sectoral Risk Assessment.
Wider Regulatory Updates
AML supervision transferring to the FCA.
HM Treasury published its consultation response in June 2026 confirming the FCA will become the single professional services supervisor for AML. The transfer requires legislation and has no confirmed start date, but the SRA is expected to remain the AML supervisor through 2026, 2027 and likely much of 2028. The underlying MLR obligations are not changing, but when the FCA takes over, firms should expect a more data-intensive, financial-services-style supervisory approach. The Law Society has raised concerns about dual fees, regulatory overlap, and the protection of legal professional privilege. We will provide detailed guidance as the timetable becomes clearer.
Law Society AGM: 14 October.
The Law Society’s Annual General Meeting is scheduled for 14 October, with the COLP and COFA rules on the agenda. Although the SRA has since paused implementation, the AGM debate will address wider concerns about the evidence base and proportionality of the proposals, and may produce a formal resolution.
SRA fee increases confirmed for October 2026 renewal.
The SRA has confirmed that practising certificate fees and firm fees are increasing at the October 2026 renewal. The increases include a higher turnover-based component for firm fees, reflecting rising regulatory costs.
Autumn Budget: 28 October.
Beyond the ILCA and NIC proposals covered in our article, firms should be aware that the Budget may contain wider measures affecting professional services. We will provide a post-Budget briefing covering anything relevant to regulated law firms.
OFSI compliance guidance updated.
The Office of Financial Sanctions Implementation has continued to update its guidance on compliance with UK financial sanctions. Firms handling client money, particularly in conveyancing and corporate transactions, should ensure their sanctions screening processes reflect the current OFSI requirements and that staff understand when a frozen asset report is required.
NCA SARs Annual Report.
The National Crime Agency published its latest Suspicious Activity Reports Annual Report covering the 2025-26 reporting year. The report provides insight into SAR volumes, quality, and sectoral trends. It is useful reading for MLROs reviewing their firm’s reporting approach and for benchmarking the quality and volume of your own submissions.
How RACO Can Help
Whether your firm needs to update its risk assessment, review its AML framework, prepare for the employment law changes, or understand what the COLP and COFA pause means for your governance arrangements, our compliance team is here to help.
For firms on our Compliance Essentials or Risk and Compliance Management service, your compliance team will be in touch with any updates that affect your policies and procedures. For all other firms, we are available to discuss any of the developments covered in this roundup.
Speak to Our Compliance Team
To discuss how these latest updates could affect your firm, arrange a strategic review, or ask questions about the Regulation and Compliance Office and how we can support your Law Firm, please call us on 0203 985 8550, complete the online enquiry form, or email us info@regulationandcomplianceoffice.co.uk
