SRA Accounts Rules Update

SRA Accounts Rules Update – Amendments for professional services firms to consider

28 November 2023

Since the revisions to the SRA Accounts Rules in 2019 (which condensed the rules down to just 13 rules), the SRA has opened a number of consultations to clarify and revise a number of the rules. The consultation (which is now closed) aimed to enhance their understandability and make the rules less ambiguous to law firms. Below, we take you through the 3 proposed amendments to the rules;

1) Firms taking money for costs in advance of work being done (Rule 2.1)

It was potentially unclear whether firms could transfer client monies to the office account for costs yet to be incurred (eg anticipated search fees) or whether the work had to be done first before funds were transferred. Firms must safeguard money at all times and work (the provision of regulated services) must be provided first before a transfer of funds between client to office accounts can be made and a bill or disbursements raised. This has been clarified in the proposed wording changes to rule 2.1 which can be seen below.

Client money

2.1 Client money is money held or received by you:

Relating to regulated services delivered by you to a client;
On behalf of a third party in relation to regulated services delivered by you (such as money held as agent, stakeholder or held to the sender’s order);
As a trustee or as the holder of a specialised office or appointment, such as done of a power of attorney. Court of Protection deputy or trustee of an occupational pension scheme;
In respect of your fees and any unpaid disbursements if held or received prior to the delivery of a bill, or other written notification, of the costs once these have been incurred.

2) Reimbursements for money spent on behalf of the client (Rule 4.3)

There was apparent confusion over whether a bill was required to be raised specifically for disbursements before monies could be transferred into the office account. The SRA are therefore proposing to add an additional rule (4.4) and to amend the wording of rule 4.3 to make it more clear that a bill is not required to raise a notification of disbursements. Note that similar to point 1 above, this must relate to disbursements which have actually been incurred and paid rather than anticipated disbursements or disbursements incurred which are not yet paid. The proposed wording changes as well as the additional new rule, 4.4 can be seen below;

4.3 Subject to rule 4.4 where you are holding client money and some or all of that money will be used to pay your costs:

You must give the client or the paying party a bill, of costs or other written notification of the costs incurred.
This must be done before you transfer any client money from a client account to make the payment; and
Any such payment must be for no more than the specific sum identified in the bill or other written notification, of the costs incurred, and covered by the amount held for the particular client or third party.

4.4 Rules 4.3 does not apply where you withdraw client money from a client account in full or partial reimbursement of money spent by you on behalf of the client, or the third party for whom the money is held.

3) Operation of a client’s own account (Rule 10)

Rule 10 relates to the operation of client own accounts which happens when, “a solicitor is appointed as a deputy (Court of Protection) or attorney (under a power of attorney). It gives the solicitor the legal access to make and receive payments directly from or into their client’s bank account. This is most frequent when the client is vulnerable/unable to self-advocate and does not have the capacity to operate their own bank account and bills still need paying.

The rules implemented in 2019 stated that the accounts would need to be reconciled in accordance with general client reconciliation standards. Meaning every 5 weeks, they had to be reconciled against obtained bank statements. Firms found this difficult for several reasons. The first being that it was often very difficult to obtain bank statements every five weeks, the second was being able to reconcile everything that appeared on those statements because not all entries would be undertaken by the solicitor.” (Source: TSG The Solicitors Group)

The important take away from the proposed amendments to rule 10.2 is that previously firms were required to obtain periodic bank statements and prepare reconciliations every 5 weeks for client own accounts and where this was impractical, a central register of both receipts and payments was required to be maintained. The frequency of the reconciliations is anticipated to change from a requirement of 5 weeks to 16 weeks.

Operation of a client’s own account

10.1 If, in the course of practice, you operate a client’s own account as signatory, Part 2 of these rules does not apply but you:

obtain periodic statements from banks, building societies and other financial institutions for each such account
keep a record showing transactions initiated by you which should be checked against the statements from banks, building societies or other financial institutions; and
keep readily accessible a central record of all clients’ own accounts that you operate including all bills or other written notifications of costs given by you.

10.2 The record kept under rule 10.1b must be signed off by the COFA or a manager of the firm at lease every 16 weeks. You should promptly investigate an resole any differences that have been identified.

Subject to Legal Services Board approval these amendments were anticipated to be introduced from 1 November 2023. The consultation is however still under consideration and extended until 2 December 2023.

To discuss how we can help you, please contact Sarah Harries or your usual BDO contact.