Solicitors Accounts Rules changes from 6 October 2011
On 6 October 2011, the Solicitors Accounts Rules 1998 were replaced by the Solicitors Regulation Authority Accounts Rules.
Here are some of the main changes to the rules: –
Status of Rules and Guidance Notes
The new Accounts Rules form part of the SRA Handbook, which also includes the new Code of Conduct. The Guidance Notes do not form part of the Rules but are an aid to compliance. The notes will clearly distinguish when they are binding. Breaches are reportable on failure to adhere to the Rules and not to the Guidance Notes.
Rule 6: Duty to report – COFA (Compliance Officer for Finance and Administration)
– The SRA Authorisation Rules require all firms to have a COFA. The responsibility of the COFA is to ensure compliance with the Accounts Rules by the Principals themselves and by everyone employed in the firm.
– The COFA must report any material breaches of the Accounts Rules to the SRA as soon as reasonably practical.
Rule 17: Receipt and transfer of costs
– Guidance note (viii) – Money is ‘earmarked’ for costs when the solicitor decides to use funds already held in the client account to settle the bill. If the solicitor needs to get client approval of the bill before taking payment, then they must agree the amount to be taken with the client before actually issuing the bill. This will ensure that there is no delay caused while waiting for client acceptance, in transferring funds out of the client account, in order to meet the 14 day rule.
Rule 21: Authority to make withdrawals from client account
– The prescriptive list of persons who may sign for authority to withdraw funds from the client account has been removed. Instead it is a requirement that such authority is provided by ‘an appropriate person in accordance with the firm’s procedures for signing on client account’. This means that a person other than a qualified solicitor may make withdrawals.
– Firms must put in place appropriate systems and procedures for withdrawals out of a client account, especially if they are expanding authority to non-lawyers in the firm.
Rules 22 & 23: When interest must be paid
– Interest must now be accounted to the client when it is ‘fair and reasonable’ to do so. The Rules however, do not state the definition of ‘fair and reasonable’ and it is therefore for the solicitor to interpret.
– The solicitor must have a written policy for when interest is paid and it must be made clear to the client at the engagement.
– The interest due to the client is calculated over the whole period for which the money is held.
– The £20 de minimis is no longer referred to in the rules, the guidance notes state that some firms may wish to apply a de minimis amount, providing the amount is reasonable and is reviewed regularly in light of current interest rates.
Rule 29: Accounting records
– Any cash or cheques received on behalf of a client which does not pass through a client account must still be included in the accounting records as a receipt and payment on behalf of the client. This ensures that a full audit trail of transactions is maintained.
– If client monies are held in a currency other than sterling it must be held in a separate account for the appropriate currency with separate accounting records, and therefore separate reconciliations.
Rule 29: Reconciliations and bank statements
– The new Rules state that every 5 weeks all bank and building society passbook accounts must be reconciled.
– A firm may use on-line accounting records however they must be saved in a format which cannot be altered. There are no obligations to keep a hard copy but the information must be able to be reproduced reasonably quickly and in printed form for at least six years.
– If on-line bank accounts are used then the online statement must follow the previous closing balance, with no gaps in transactions.