SRA Accounts Rules: Making Progress!

The consultation proposes a complete revamp of the Rules. The current Accounts Rules have not notably changed for many years and can be difficult to fully understand. The SRA have recognised this and have reported that ‘of the approximately 9000 firms that hold client money, in the period June 2012 to December 2013, over 50% received a qualified accountant’s report but only 179 were referred to consideration for further regulatory action’.

 

This would suggest that many of the breaches reported on in the past have been technical in nature, rather than breaches which signified a risk to client money.

 

Since 1 November 2015 (Phase 2 of the SRA’s revamp), for accounting periods ending on or after that date, Reporting Accountants should only qualify Accountants Reports to the SRA if they identify ‘material’ breaches as a result of their work. The SRA provided a summary of Rules which they deemed to be ‘material’ when they released Phase 2 and these were specifically focussed on the risks surrounding the misuse of client money.

 

It is therefore not a surprise that these Rules are the ones which remain within the main body of the Draft Accounts Rules proposed by the SRA in Phase 3 of their consultation. They are keeping client money separate from firm money, ensuring client money is returned promptly at the end of a matter, and using client money only for its intended purpose.

 

It is the SRA’s vision to reduce the number of Rules whilst increasing compliance. For many years they have been pushing self-regulation and monitoring (via OFR), and it appears that this is coming to fruition. The role of your firm’s COFA/ COLP has been for some time to identify risks to client money and to self-report should they identify any material procedural issues with regards to these risks. It is now the role of your Reporting Accountant to review procedures implemented as a result of your risk review and identify any systematic weaknesses with regards to safeguarding client money. These Draft Rules will mirror what your Accountant is now expected to look at, and remove the prescriptive, complex Rules we currently are expected to follow.

 

The proposals are expected to not only improve the provisions made by law firms to safeguard client money effectively, but also to reduce compliance costs for some firms. The SRA have proposed a change to the definition of client money to enable some firms to reduce their client balances and in turn be exempt from obtaining an Accountants Report. They have also proposed the introduction of third party managed bank accounts, whereby client funds are held externally to the solicitors firm itself. These funds would not be subject to the Rules.

 

We are expecting the SRA to go live with Phase 3 in April 2017, but in the meantime, if you have any queries regarding the new Rules, risk or compliance, please contact the Professional Practices team.