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When you’re dealing with client money, the stakes are always high. For law firms, the way they handle the money speaks volumes about professionalism, compliance, and trust.
Thus, it cannot be done without a credible person; a structured framework is needed, nonetheless. That’s why the Solicitors Regulation Authority (SRA) has set out a clear and structured framework and this framework is known as the SRA Accounts Rules.
These rules govern how legal practices must treat funds held on behalf of clients. To understand, SRA account rules one must align oneself with a competent person. MMBA Accountants have experts who possess the required SRA knowledge that can help you get over any SRA confusion.
This guide will break down what the SRA accounts rules mean. Moreover, it also sheds light on how to stay compliant, and why following them is not just good practice.
The SRA Accounts Rules set out how firms should handle client money. These are mandatory guidelines issued by the Solicitors Regulation Authority, which regulates solicitors and other legal professionals in England and Wales.
The core purpose of the rules is to ensure that client money held by solicitors is:
These rules apply to all authorised bodies, and it includes traditional law firms and licensed bodies such as alternative business structures.
The rules require that any money belonging to clients must be properly recorded, securely held, and returned promptly when it is no longer needed.
One of the main features of the SRA Accounts Rules is the concept of a client account. For that, a bank or building society account also be used exclusively to hold client money.
So, what exactly is considered as the client money?
Client money includes:
Firms must ensure that client money is immediately paid into the correct client account and not into the office account, unless the rules permit it.
When you’re holding client money, your accounting procedures must be tight. Failure to allocate promptly, or mixing funds without good reason, quickly escalates into professional misconduct.
The SRA accounts rules are less prescriptive than previous versions. It focuses more on key principles than detailed prescriptions. Still, the obligations remain serious.
Here are some key responsibilities under the current rules:
The SRA mandates that client accounts held by solicitors must not operate as a banking facility for clients. This means firms should avoid receiving other money unrelated to legal work.
A proper accounting record must show:
One should obtain regular statements from the bank or building society and reconcile these with the internal client ledger total and cash book balance. This makes sure that your accounting records stay clean and compliant.
Failure to do this may result in missing client money. For instance, a serious breach that could trigger disciplinary action and potentially a claim on the SRA Compensation Fund.
The new rules, introduced in November 2019, replaced the previous rules. Moreover, they offer more flexibility but also put greater emphasis on accountability.
Under the old rules, there were stricter formatting and time-based requirements. The new rules reduce complexity but require firms to justify decisions and use sound judgment. There’s less hand-holding and a greater responsibility for compliance.
One significant change was around party managed accounts. Under the new rules, firms can use a third-party managed account instead of a traditional client account. However, they need to meet certain conditions and notify the Solicitors Regulation Authority with written notification.
Misapplying the accounts rules can have serious consequences. For example:
The SRA can investigate firms that don’t comply, and the results can be severe. However, if your law firm needs help understanding or meeting the SRA Accounts Rules, our accounting services for law firms are ready for full compliance.
Firms must appoint a reporting accountant to review their compliance with the solicitors accounts rules, unless exempt. The accountant will look at:
They will then submit accountants reports to the SRA. Any significant breaches must be disclosed. If a firm receives an adverse report, the SRA may take action depending on the breach and the public interest.
When a firm receives mixed payments, part of which belongs to the client and part to the firm (such as fees), these should be split correctly:
Where it’s unclear, firms must use reasonable steps to determine ownership and appropriately authorise the transfer. Failing to follow SRA rules can lead to penalties. We help law firms stay compliant through our compliance accounting services.
To stay on the right side of the SRA, law firms should follow these best practices:
Firms should also keep staff trained and aware of their responsibilities under the solicitors accounts rules. Compliance isn’t just a finance team issue, it’s a firm-wide responsibility.
According to SRA Rules, one must return the client money promptly once there’s no longer a reason to hold it. You can’t keep funds indefinitely just in case the client might need them. Handling client money needs to follow strict rules. Like the CASS audit process, SRA rules focus on trust and transparency.
If you’re struggling to find the client or return the money, you may need to apply to the SRA for guidance or authorization. But this is a last resort, not a solution to poor accounting.
Note: Keeping funds without a proper reason is a regulatory risk.
Here’s a checklist to help you stay compliant:
It is important to understand the SRA Accounts Rules but one must implement the clear accounting procedures.
They must know about separating funds, to train the team, and acting promptly, your firm can avoid the pitfalls of non-compliance. For instance, if one is holding client money, managing a client account, or producing accurate accounting records, following the rules promptly is more than just a legal requirement.
Lastly, The cost of money improperly withheld or improperly withdrawn is simply too high; both financially and reputationally. Stay sharp, keep clean books, and always act in the public interest. For that, MMBA Accountants in Preston are here to help you stay ahead of penalties.
The SRA Accounts Rules are regulations which are set by the Solicitors Regulation Authority to make sure that law firms handle client money safely, transparently, and ethically.
Client money includes funds received from or on behalf of clients for legal services, disbursements, or held in trust. However, it must be paid into a designated client account.
No law firms cannot use client account as banking facilities. If one, uses a client account to hold money unrelated to legal services is prohibited under the SRA rules and may lead to disciplinary action.
Client money must be returned in a situation where there’s no valid reason to retain it. Keeping it unnecessarily could breach the rules.
If a firm breaches the SRA Accounts Rules, it can result in fines, regulatory investigations, or even firm closure if public interest is at stake. Accurate records and prompt action are essential.