SRA Accounts Rules – two years on

Now we’ve passed the two-year anniversary of the new SRA Accounts Rules, I review some of the key changes and how these rules can work better for solicitors and their clients. I also look at some of the teething issues and additional guidance issued by the SRA.

The new rules are vastly reduced in size and less prescriptive. Firms are encouraged to use their own judgement in applying the rules, and whilst the overarching principle remains the same, to keep client money safe, there are additional benefits for you and your clients.

Some areas of prescription remain, such as the requirement to reconcile bank accounts at least once every five weeks. This is a key control. Common non-compliance areas are client reconciliations not being prepared on a timely basis or not being reviewed properly. Therefore, reconciliations are needed to highlight errors.

The reviewer needs to pick up on the errors and make sure they are rectified promptly – especially before the next reconciliation. The person signing the reconciliation should fully understand the reconciliation process and what the review is trying to achieve. 

Key changes

• New requirement to reconcile clients’ own accounts. This was absent from the old rules but the SRA deems it incredibly important as potentially, large sums of client money are being operated outside of the general, highly controlled client account.
  
  It’s been found that some firms are not devoting the necessary resource to comply with this rule and that there are still some teething issues. The SRA appreciates that there’s a large shift needed to comply and has set out additional guidance on its minimum expectations. You can find our previous blog on Rule 10 here.
  
  Time will tell if there is any amendment to the requirements of Rule 10 following the year 1, 3 and 5 reviews.
• Third party managed accounts (TPMA). Covered by Rule 11, this is a new area of the rules which gives firms an alternative to holding client money. Any money held in a TPMA is not deemed client money and therefore falls outside the scope of the SRA Accounts Rules.
• Firms can avoid having a client account if the only money held or received by the firm is in respect of their fees and disbursements that relate to costs and expenses incurred on behalf of their client. This is covered in full by Rule 2.2.
• Fewer set time frames. From a practical point of view, firms can set their own time frames and decide how to deal with other elements of the rules that were previously very rigid.

This provides significant opportunity for firms to adopt approaches that are more appropriate for them. However, most firms seem to be simply carrying on with the old time frames under previous rules. There’s no reason why this can’t or shouldn’t be done, but now we’re two years on, and two years into the “new normal”, perhaps it’s time to think about how the rules could work better for you?

Keeping good records

Whether firms are sticking to the old time frames, or have changed to new ones, the processes need to be formally documented in your procedures and manuals. The rules no longer have the time frames written within them, so the rules themselves are not enough to fall back on.

Remember, the approach is outcomes focused. This applies to both the firm and the reporting accountant, and when considering whether a breach is reportable to the SRA or not, other factors, other than just the breach itself, need to be considered. The focus is on risk to client money. Think about control systems, volume of breaches, past history, attitude... Not one factor is determinate.

The COFA’s breach register is an important tool and should be thoroughly maintained and used to look out for themes in breaches. For example, the type of breach; a particular fee earner; a certain time of month; a cashier is on holiday; etc.

Also, remember that COFAs need to document why a particular instance is considered material or immaterial. This contributes to the control system and helps keep client money safe. 

Need help?

If you have any concerns regarding the SRA Accounts Rules, please get in touch with our Legal team. You can find contact details on the Our People section of the Larking Gowen website. Alternatively, call 0330 024 0888 or email enquiry@larking-gowen.co.uk.

Ellis Lake