Solicitors Accounts Rules 2018 – More changes on the way

Written by Im Sooi Lean on 23 April 2018

The draft SRA Accounts Rules 2018 were published by the SRA on 14 June 2017. The main focus of the new rules is to keep client money safe rather than prescribing how firms must run their accounts. According to the SRA, the detail of how firms should run their accounting systems only creates logistical problems over compliance for some and makes it difficult for most firms to comply. The removal of prescriptive rules reflects the shift towards professional judgement.

Overview:

  • Simplifying the rules: SRA Accounts rules to be reduced from forty one pages down to seven containing twelve rules.
  • Definition of client money: Monies paid in advance of fees and unpaid disbursements, prior to the delivery of the firm’s bill, is client money. If this is the only form of client money held, then the firm may claim an exemption allowing these monies to be paid directly into the office account. They no longer need to operate a client account. As there will be no requirement for an accountant’s report, firms that use this exemption may save on compliance and professional indemnity insurance.
  • References to specific time periods removed (2 and 14 days) and replaced with “promptly”, “fair” and “appropriate” – professional judgement required from firms and reporting accountants.
  • Use of a TPMA (third party managed accounts) as an alternative to operating client accounts. It will be operated under an agreement with the third party (a “payment service provider”), the firm and the client in an account that falls under FCA regulations. The third party will become responsible for the money. The firm will no longer hold client money and will not need an accountant’s report.
  • There will be no automatic requirement for a firm to obtain a final accountant’s report when it ceases to hold client money. The SRA may request such a report on a case-by-case basis.
  • Legal Aid Agency payments are exempted from being held in the client account.
  • An interest policy is still required however; firms can now come up with client agreements over whether the interest is paid to them.

The emphasis will continue to be minimising the risk to client monies, with less prescriptive Rules and more Best Practice, with the Accountant’s Report being based on an outcomes focus approach.

Be warned! Whilst the rules are simpler and shorter, there is more to come. The SRA has made it clear that they intend to publish additional guidance on the correct implementation and application of the new rules to be read in conjunction with the new rules. There is likely to be a substantial amount of new guidance which will probably be treated as part and parcel of the rules!

Im Sooi Lean Profile
Im Sooi Lean
Corporate Client Director