Change is coming to the SRA accounts rules!

Luke Shacklock from our audit department discusses changes that may have a significant impact on regulated solicitors' firms.

If your legal practice is regulated by the Solicitor's Regulation Authority (SRA), you are required to comply with the SRA client money rules, stipulating how you must account for funds held on behalf of your clients.

In November 2018, the SRA's new proposed rulebook was approved by the Legal Services Board and will become effective from November this year. It is therefore imperative that legal firms are ready to implement and comply with these changes.

The new rules present a significant cut in the detail and complexity of the compliance requirement, with the 52 current rules, effective since 2011, reduced to just 13, including the removal of all guidance notes. The SRA had previously indicated an intention to release technical toolkits, but this has now been withdrawn in favour of as-yet undefined additional guidance.

There are several key changes your practice will need to be aware of, including:

• Money paid in advance by the Legal Aid Agency can now be held in office account.
• The distinction of a 'professional disbursement' has been abolished, with all disbursements now treated in the same way.
• A bill or notification of costs must now be sent to the client before reimbursement can be made from the client account for disbursements.
• Rule 10.1 of the new rules requires clients' own bank accounts, operated by the regulated firm, to be reconciled in the same way as the firm's own client accounts.
• The old rules regarding the 14-day time limits for transfer of office money to cover earmarked costs will be abolished.

The SRA has placed an emphasis on firms developing a coherent and rigid control environment, minimising the risk of non-compliance with its rules and allowing such breaches to be rectified as soon as possible. Previous guidance on best practice has now become mandatory in the new rules, such as the firm's designated COFA or appropriate manager signing off the bank reconciliations.

The requirement to obtain an accountant's report remains largely unchanged and it is important that legal practices instruct a registered auditor with extensive experience in conducting audits of regulated solicitors' practices. An accountant's report is more than just a review of compliance. It is also a review of internal processes, which can benchmarked against industry best practice. This will become of increased importance for compliance under the new rules, which give firms flexibility to decide their own processes and timeframes for compliance with the regulations.

Contact us for more information about the services we offer, not just in relation to SRA accounts rules audits, but also in business advice, tax compliance, accounts preparation and statutory audit. Email enquiries@pagekirk.co.uk or call 0115 955 5500.