OFSI Now Requires Independent Costs Lawyer Reports for Sanctions Licensing

Practice Guides — 2026-03-27

OFSI has updated its guidance to require independent Costs Draftsperson Reports (CDPRs) from CLSB-regulated Costs Lawyers for sanctions licensing applications where legal fees exceed £2m per firm or £1m per counsel in any six-month period.

On 13 March 2026, the Office of Financial Sanctions Implementation (OFSI) published updated guidance on its approach to assessing reasonableness in licence applications. The update introduces a significant new requirement: independent Costs Draftsperson's Reports (CDPRs) prepared by regulated Costs Lawyers.

This represents a meaningful development for the costs law profession. For the first time, OFSI has created a formal, mandated role for Costs Lawyers within the UK financial sanctions regime.

What Has Changed?

Under the UK sanctions framework, legal fees paid from frozen funds require an OFSI licence. The applicant bears the burden of demonstrating that those fees are reasonable.

Previously, OFSI assessed reasonableness internally using guideline hourly rates and amounts recoverable through civil court proceedings as benchmarks. The updated guidance now requires an independent CDPR where legal fees exceed specified thresholds.

The New Thresholds

OFSI now requires a CDPR in the following circumstances:

Law firms: where total legal and counsel fees (including expenses and VAT) exceed £2,000,000 within any six-month period
Counsel (direct instruction): where costs including disbursements exceed £1,000,000 within any six-month period

These thresholds are applied:

Per UK law firm or per counsel member
Per designated person
Cumulatively across all specific licences and applications

For applications covering periods longer than six months, the thresholds apply on a pro rata basis. An 18-month application, for example, would have thresholds of £6,000,000 for a law firm or £3,000,000 for counsel.

Who Can Prepare a CDPR?

The guidance is specific. CDPRs must be prepared by Costs Lawyers who:

1. Hold a current practising certificate issued by the Costs Lawyer Standards Board (CLSB)

2. Comply with the CLSB Code of Conduct

3. Are independent of the legal team undertaking the licensed work

This independence requirement is critical. The Costs Lawyer preparing the report cannot be part of the firm whose fees are under review. OFSI is looking for a genuinely independent assessment.

What Does a CDPR Involve?

While OFSI does not prescribe a fixed format, the purpose of the CDPR is to provide an independent opinion on whether the legal fees claimed are reasonable. In practice, this is likely to involve:

Reviewing detailed fee breakdowns by fee earner and workstream
Assessing hourly rates against guideline rates and any justification for departures
Considering the complexity, urgency, and specialist nature of the work
Evaluating the time recorded against the scope and progress of the matter
Providing a clear, reasoned opinion on reasonableness

This is, in substance, the same analysis a Costs Lawyer undertakes in detailed assessment proceedings - applied to a regulatory rather than court-based context.

How Will OFSI Use CDPRs?

OFSI is clear that a CDPR forms part of the evidence package but is not determinative. Even where a CDPR supports the fees claimed, OFSI retains discretion to:

Determine that reasonableness has not been demonstrated
Licence a lower amount than requested
Decline to licence certain costs

This mirrors the position in detailed assessment, where a costs judge retains discretion regardless of the arguments presented.

Anticipated Costs

Importantly, OFSI will accept CDPRs assessing anticipated (not yet incurred) costs. For long-running sanctions matters, OFSI encourages quarterly applications with CDPRs covering the costs incurred in each period.

This creates the potential for ongoing, recurring instructions rather than one-off reports.

Can CDPR Costs Be Licensed?

Yes. The cost of obtaining a CDPR can itself be licensed under the legal services licensing ground, subject to the same reasonableness standard. Applicants can include CDPR costs within their main application or request them separately.

Practical Implications

For Law Firms

Firms acting in sanctions matters where fees approach the £2m threshold should factor CDPRs into their workflow. Proactive engagement with an independent Costs Lawyer - ideally before submitting the licence application - will strengthen the application and reduce the risk of OFSI requesting further information or licensing a reduced amount.

For Costs Lawyers

This is a new and specialist area of work. The sanctions market involves complex, high-value matters with significant fee levels. The pool of firms regularly acting in this space is relatively small, and the CDPR requirement is mandatory above the thresholds.

Costs Lawyers looking to develop expertise in this area should familiarise themselves with OFSI's general guidance on financial sanctions, the specific licensing grounds for legal services, and the particular considerations that arise in sanctions work - including the sensitivity of the subject matter and the need for careful handling of privileged information.

For Designated Persons

The CDPR requirement provides an additional layer of scrutiny over legal fees, which should give designated persons greater confidence that the costs being deducted from their frozen funds are reasonable and properly justified.

Key Takeaways

1. CDPRs are now mandatory for sanctions licensing applications where legal fees exceed £2m per firm or £1m per counsel in any six-month period

2. Only CLSB-regulated, independent Costs Lawyers can prepare them

3. OFSI will accept CDPRs on anticipated costs, creating scope for recurring quarterly instructions

4. The cost of the CDPR itself can be licensed

5. This is, in substance, detailed assessment work applied to a regulatory context

Related Specialist Support

Costs Lawyer Support: Direct help with costs procedure, strategy, drafting and advocacy.
Costs Budgeting and Detailed Assessment: Precedent H, dispute documents, negotiations and assessment strategy.
Law Firm Costs Support: Flexible specialist capacity for litigation teams and solicitors.