Solicitors’ Accounts Rules: Operating a client’s own account
31 January 2020
Following the introduction of the new Solicitors’ Accounts Rules (SAR) on 25 November 2019, there have been concerns about the requirement of law firms to comply with SAR Rule 10, which covers the operation of a client’s own account.
This area was one of the main changes in the new SAR. Below I’ll recap what the obligations are and what we’ll be looking for as reporting accountants.
SAR Rule 10
SAR Rule 10.1 states that if a law firm is operating a client’s own account as signatory, they must:
- obtain statements from banks, building societies or other financial institutions at least every five weeks for these accounts;
- carry out reconciliations of each account every five weeks, a record of which must be signed off by the Compliance Officer for Finance and Administration (COFA); and
- keep a record of their bills and other notification of their costs.
What you need to do
To have a reconciliation you need more than just the bank statements.
This probably wasn’t the case before as usually these accounts are held outside of the client account ledgers and solicitors weren’t required to reconcile them.
However, now law firms need to keep a separate record of the transactions made through the client’s own account, showing a running balance. This record could be produced by using the designated deposit function on your computer system or separate excel spreadsheets.
We suggest you keep a separate file containing the record of transactions you complete, along with a copy of the bank statement, to show that the figures reconcile. This needs to be reviewed and signed by the COFA. Any differences shown by the reconciliation must be promptly investigated and resolved, i.e. by the next reconciliation.
You must also keep a central register of the client’s own account that you operate. It’s likely this will be requested by your reporting accountant.
When you need to do it
Additional guidance issued by the Solicitors Regulation Authority (SRA) on 30 September 2019 has removed the need to reconcile five-weekly as it recognises that not all law firms have access to monthly bank statements. Instead, reconciliations are required once statements are received.
The overall emphasis of the new SAR is protection of client money. The SRA sees this area as a potential problem as individuals have authority over client funds that lie outside of the normal, highly controlled, general client account.
If you require any further guidance regarding the new SAR and their implementation, please call us on 0330 024 0888.
Sign up to receive the latest news from Larking Gowen