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What is a Breach for the COFA?

This arises out of a discussion with the ILFM.

Unfortunately, it’s not as straight forward in drawing up a list of what is and what isn’t material breach. Our view is that materiality can be very subjective and often left to interpretation.

To assist practices, they suggest you ask yourself the following questions in order to quantify if a breach is material or not;

  • Was the breach an isolated incident
  • How severe is the problem
  • Was the breach an innocent mistake
  • Was it discovered promptly and without delay
  • Was there any loss to the client
  • Can you still say that you are being open with your regulator if you keep this information to yourself

If you are satisfied with your answers to all of the above questions, then it is likely to be viewed as a minor breach.

Some examples of what might lead to a qualified report;

  • A significant and/or unreplaced shortfall (including client debit balances or business credit balances) on client account, including client money held elsewhere, for example a client’s own account, unless caused by bank error and rectified promptly
  •  Evidence of any disregard for the safety of client money and assets
  •  Actual or suspected fraud or dishonesty by the managers or employees of the firm (that may impact upon the safety of money belonging to clients or third parties).
  •  Accounting records not available or significantly deficient or bank accounts/ledgers failing to include reference to a client (rule 8.1, 8.2 and 8.3).
  •  A failure to provide documentation requested by the reporting accountant (rule 12.8).
  • Client account bank reconciliations not carried out.
  •  The client account is improperly used as a banking facility (rule 3.3). 
  • Any other significant breaches not already reported to the SRA in accordance with the obligations placed on firms and their compliance officers under the SRA Code of Conduct for Firms.

We provide a remote monthly COFA & COLP Review service to several firms. Whilst we cannot be the Compliance Officers, we can help doing some of the spade work for them – providing a report for the COFA & COLP and highlighting issues that they should address. https://www.hunningsconsultancy.co.uk/colfa-colp-assistance/

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