Ahead of the 25 November 2019 introduction of the new rules, the SRA have released in October 2019 additional documents on their website clarifying aspects of the new rules.
Payments of residual balances to charity
The SRA have issued further guidance regarding prescribed circumstances for the SRA authorising a withdrawal from the client account under new Rule 5.1(c). One such instance is the payment of client funds to charity, in the situation where the individual client matter balance is less than £500, and the firm has made a sufficient effort in order to trace the rightful recipient of these funds. This brings in line with the current Rule 20.2.
In their guidance note, the SRA have provided information regarding the steps it expects a firm to follow before paying these funds to a charity. These are:
- that the balance is paid to a charity of your choice;
- you have taken reasonable steps to return the money to the rightful owner. The reasonableness of such steps will depend on:
- the age of the residual balance;
- the amount of the residual balance;
- if you have access to the client’s most up to date contact details;
- if not, the costs associated with tracing your client;
- you record the steps taken to return the money to the rightful owner and retain those records, together with all relevant documentation for at least six years;
- you keep appropriate accounting records, including:
- a central register which records the name of the rightful owner on whose behalf the money was held, the amount, name of the recipient charity (and their charity number) and the date of the payment; and
- all receipts from the charity and confirmation of any indemnity provided against any legitimate claim subsequently made for the sum they have received; and
- you do not deduct from the residual balance any costs incurred in attempting to trace or communicate with the rightful owner.
As is currently the case, authority must be obtained from the SRA prior to the payment of an individual client matter balance in excess of £500 being paid to a charity.
Operation of a client’s own account
New Rule 10.1 suggests that 5-weekly reconciliations should be performed for all instances where the firm operates a client’s own account as a signatory; one such example being as a Deputy in a Court of Protection matter.
The SRA has now stated that where ledgers are not maintained for a client’s own account and will not have access to monthly bank statements, the firm will not be regarded as in breach of the above Rule provided that the firm has sufficient internal controls in place to ensure that such matters are adequately recorded and ensuring that client monies are not at risk.
The SRA has provided examples of records which should be maintained, which are:
- central register of the client’s own accounts that you operate,
- separate record of the transactions carried out by you or on your behalf in respect of the client’s own account, and
- record of your bills and other notification of costs relating to that client’s matter
In both scenarios above, the guidance from the SRA follows the path the Rules have headed with less emphasis being placed on the detailed Rules themselves, and more on the internal controls the firm has in place to ensure compliance with the Rules. These controls will therefore increasingly be checked by your reporting accountant as part of your annual SRA Accounts Rules compliance review.
Should you have any questions regarding the above, or any aspects of the new SRA Accounts Rules, please do not hesitate to contact Sam Evans or any member of the Professional Practice team on 01772 821021.