New SRA Accounts Rules

As you are no doubt aware, new SRA Accounts Rules are due to come into effect on 25 November 2019.

They form part of the launch of the SRA's new regulatory model and, according to the SRA, will allow solicitors greater flexibility in how they work. In terms of the accounts rules, they will focus on the principal of keeping client money safe.

The new SRA accounts rules comprise of thirteen short rules. No guidance notes are included as previously had been the case but the SRA is promising to add additional guidance and we presume that this will take the form of separate notes.

The new rules include the following:

  1. What we refer to as the office ledger and office bank account is now the business side of the client ledger and the business account.
  2. The 14 day rule for transfers to business account has been removed and the emphasis is now on promptness throughout the rules.
  3. The mixed receipt rules have been simplified so now firms just need to be prompt in transferring funds to the correct bank account.
  4. When money is received in advance for fees and disbursements, the firms can hold these funds in the business account if these are the only client monies that they hold and provided they inform clients in advance of how and where the funds will be held. The SRA believes that this will allow some firms to operate without a client account in future and this in turn would mean that an SRA report would not be required.
  5. Money received from the Legal Aid Agency for costs can be held in the business account. The obligation to either pay unpaid disbursements or transfer the corresponding funds from business account to client account has been removed but the SRA would expect the firm to pay the disbursements promptly.
  6. Firms will have to provide a bill of costs, or other notification of costs incurred, to the client or paying party before they can transfer funds from client account to business account. The SRA definition of costs includes disbursements. This a change in that the old rules allow firms to transfer money from client account to business account to reimburse themselves for disbursements paid out of the business account before a bill is issued to the client.
  7. The wording of the new rules in respect of the obligation to send a bill of costs or other written notification to the client or paying party before transferring funds suggests that this bill can be sent in respect of work to be undertaken, thus being a payment in advance. This may be an area where further guidance is issued.
  8. The concept of professional disbursements has been removed and all disbursements will be treated in the same way. It will therefore not be possible to transfer from client to business account unpaid non-professional disbursements prior to billing. The old rules refer to client money as including monies held in relation to unpaid professional disbursements but the new rules state that “client money is that which is held in respect of fees and any unpaid disbursements held or received prior to the delivery of a bill.”
  9. The concept of agreed fees has been removed and the monies will need to be held in the client account until a bill is raised unless the firm can take advantage of the new rule allowing monies received in advance for fees and disbursements to be held in the business account.
  10. The COFA or the manager of the firm will need to review and sign off the client account reconciliations. Any difference on the reconciliation should be investigated and resolved promptly.
  11. Where the firm operates a client's own accounts, it will need to reconcile these every five weeks.
  12. The new rules do not specifically refer to the requirement to maintain a breaches register but the COFA will need to report serious breaches to the SRA promptly and demonstrate that they have the ability to do so. It would therefore seem sensible to continue maintaining a breaches register. It is worth noting that a number of minor breaches could indicate a more serious underlying problem that the firm should take seriously and may need to report to the SRA.
  13. The rules do not detail how a firm can deal with old client ledger balances that it cannot return to the client and would like to pay to charity. This has been identified by the SRA as an area where additional guidance is likely to be issued.
  14. In respect of payments of interest to clients on any client money held by you on their behalf, firms must account for a fair sum of interest or, by way of a written agreement, come to a different arrangement regarding interest, after ensuring that sufficient information is provided to the client to enable informed consent to be given.
  15. Firms can enter into arrangements with a client to use a third party managed account in respect of client account monies.
  16. Firms are not required to obtain an accountant's report if, during the accounting period, there balance held does not exceed an average of £10,000 and a maximum of £250,000 based on the firm's client accounts, any joint accounts and client's own accounts operated by the firm. Previously only client balances needed to be included in the calculations.

We await more guidance from the SRA with interest.

Please do contact us if you would like to discuss the new rules in more detail.

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