Colp & Cofa

The COFA’s response to lender panel removal should begin with two questions: what happens to the money already held, and what happens to the firm’s finances if the work stops? Removal from a major conveyancing panel, such as HSBC’s, can affect current transactions, future instructions and the timing of fee receipts.

The managing partner may understandably concentrate on challenging the decision. Meanwhile, the Compliance Officer for Finance and Administration needs reliable information about affected matters, client balances, anticipated receipts and the financial consequences of disruption.

Panel removal is not automatically evidence of misconduct or financial instability. However, where the lender represents a substantial part of the practice’s pipeline, it should trigger a documented assessment involving the COFA, COLP and management.

Why panel removal belongs on the COFA’s agenda

The COFA’s specific regulatory responsibilities concern compliance with the SRA Accounts Rules and reporting relevant serious breaches. The firm’s managers remain responsible for compliance; appointing a COFA does not transfer that responsibility away from them.

Financial stability is also a firm-wide obligation. Paragraph 2.4 of the SRA Code of Conduct for Firms requires active monitoring of financial stability and business viability.

In practice, the COFA will often hold information needed to assess the impact of panel removal. Their contribution should therefore extend beyond confirming that the latest client-account reconciliation balances.

The immediate concern is whether disruption to transactions and income could undermine the firm’s ability to meet its obligations while continuing to safeguard client money.

An HSBC appeal succeeded, but the firm still faced immediate uncertainty

In Simon Seaton’s LinkedIn account of a successful HSBC panel appeal, a managing partner approached Lexsure after the firm had been removed from the lender’s panel.

HSBC mortgages represented an important part of the firm’s pipeline. Lexsure assisted with pursuing the appeal route and preparing an evidence-backed submission addressing the concerns raised. The firm subsequently reported that it had been reinstated.

This is a reported consultancy experience, not a guarantee that another firm will secure reinstatement. Appeal arrangements, reasons for removal and lender decisions differ.

For the COFA, the lesson is that a potentially successful appeal does not remove the need to manage the intervening financial risk. Forecasts should allow for delay, an unsuccessful appeal and the possibility that lost instructions will not immediately return.

1. Establish exactly which matters are affected

Obtain the removal or suspension notice and clarify its effective date, scope and treatment of existing instructions.

Do not assume that every current file must transfer. Equally, do not assume that previously issued instructions authorise the firm to continue regardless of the notice.

The legal team should obtain the lender’s written position on affected matters. The COFA should then ensure that the financial records reflect the confirmed arrangements.

Create a schedule recording:

• The client, property, lender and matter reference.
• Whether contracts have been exchanged.
• Any contractual completion date.
• The status of the Certificate of Title and funds request.
• Client money and lender funds already held.
• Expected fees, disbursements and outstanding bills.
• The agreed next action and responsible person.

Files approaching completion require particular attention. A general discussion about reinstatement cannot substitute for a confirmed plan for a transaction with a contractual deadline.

2. Check mortgage advances already received

If mortgage funds are already in client account, establish the instructions governing them and whether the firm remains authorised to use them for the intended completion.

If completion cannot proceed, the conveyancing team should obtain appropriate directions, including any requirement to return the advance and account for interest.

The COFA should ensure that payments follow the applicable authority, correct ledger and verified recipient details. Do not assume that authority to transfer the buyer’s own funds also authorises transferring the lender’s advance to a replacement firm.

A change of solicitor creates additional opportunities for payment fraud. Independently verify replacement-firm details and any changed payment instructions before releasing money.

3. Reconcile client balances and handover arrangements

For each transferring matter, distinguish money needed for the transaction from amounts relating to costs already incurred.

Record the authority for any refund or transfer, the amount, recipient and supporting calculation. Deal with residual balances and applicable interest, and retain a clear audit trail.

The SRA Accounts Rules require proper authority for withdrawals, sufficient funds for the particular client or third party and prompt return when there is no longer a proper reason to hold money.

Commercial disagreement about fees should not lead to funds being retained or used without a proper basis. Escalate uncertainty to the COLP and obtain advice where necessary.

4. Review billing and additional costs

Panel removal can create difficult questions about work in progress, refunds, replacement solicitors’ fees and costs incurred to preserve a transaction.

The firm should establish:

• What the retainer permits it to charge for work completed.
• What money has already been spent on disbursements.
• Whether a fee reduction, refund or contribution is proposed.
• Who has authority to approve that arrangement.
• Whether a complaint or potential claim requires insurer involvement.

A replacement firm is not obliged to adopt the original quotation or accept all existing work without review. Our article on what happens to a house purchase when the solicitor is removed from the lender’s panel explains the client’s practical concerns.

Before transferring client money to pay the firm’s costs, ensure that the Accounts Rules requirements are met. Billing should reflect the proper entitlement, rather than the practice’s need for cash.

5. Reforecast cash flow using realistic assumptions

Lost panel work can affect more than new instructions. Existing matters may transfer, completion dates may slip and receipts previously expected this month may disappear.

A practical response is to prepare a rolling cash-flow forecast, often covering the next 13 weeks, with scenarios for continued exclusion and possible reinstatement. This is a management tool, not a prescribed SRA forecasting period.

Include:

• Fee receipts supported by matters the firm can still complete.
• Reduced or delayed receipts from affected files.
• Refunds and contributions towards additional client costs.
• Payroll, tax, rent, insurance and other committed expenditure.
• The cost of remediation and pursuing an appeal.
• Available borrowing and any relevant conditions.

Separate instructions already lost from work that might return. Reinstatement would not necessarily restore the original pipeline, referral relationships or receipt dates immediately.

Client money is not working capital. The firm’s business-account cash position must be assessed independently of the balance held for clients and lenders.

6. Assess reporting and notification obligations

A lender’s panel decision is not automatically a reportable Accounts Rules breach. The reasons for removal and the resulting circumstances need assessment.

The COFA should consider any serious Accounts Rules breach identified. The COLP and management should assess wider regulatory concerns, including the underlying conduct and the firm’s response.

The firm must notify the SRA promptly of indicators of serious financial difficulty under paragraph 3.6 of the Code of Conduct for Firms. It should not wait for insolvency before considering that obligation.

Record the assessment, evidence and decisions. If management disagrees, the COFA’s responsibilities cannot simply be set aside.

Review notification requirements in professional indemnity cover, finance agreements and other panel arrangements where relevant. Panel removal does not establish that every other lender must be notified; the applicable terms and facts need checking.

7. Contribute evidence to the lender response

The COFA can help ensure that any submission accurately describes financial controls and their implementation.

Depending on the concerns raised, useful evidence may include reconciliations, payment-authorisation records, corrective actions, training and management review.

Do not describe a procedure as operating effectively merely because a revised policy has been circulated. Explain what has changed, how it is being tested and what remains outstanding.

Our article on HSBC panel removal and LMS oversight considers the importance of addressing the concerns actually raised and demonstrating remediation.

Where AML failings are involved, the MLRO and other relevant personnel should contribute. AML compliance and the COFA’s Accounts Rules responsibilities overlap operationally, but they are distinct responsibilities.

8. Keep oversight in place after the immediate crisis

The firm still needs to complete outstanding registration work, honour undertakings and supervise matters it remains authorised to handle.

Review whether staff departures, reduced capacity or financial pressure could leave work unattended. Reallocating files should include accounting information and outstanding obligations, rather than simply moving documents.

If panel status changes the service the firm can provide, check that new clients receive accurate information and that existing clients understand the confirmed options and costs.

The COFA should keep management informed through a short, regularly updated report covering affected balances, expected receipts, unresolved payments and emerging financial concerns.

The appeal and financial response should run together

The firm needs a coordinated plan: establish its authority on current files, safeguard funds, explain the position to clients, assess financial exposure and respond accurately to the lender.

The COFA should have access to the information needed to challenge optimistic assumptions and escalate concerns. That protects clients while giving management a sound basis for deciding the firm’s next steps.

This article concerns SRA-regulated firms in England and Wales and provides general information. Check the removal notice, lender instructions, retainers, insurance terms and applicable regulatory requirements. HSBC is used as an example; Lexsure is independent of HSBC and LMS.