Two topical matters on the new SRA Accounts Rules 2019 by Partner PKF Francis Clark

The new SRA Standard and Regulations came into effect on 25 November 2019, replacing the previous SRA Handbook.

 

Within these latest regulations are the new set of SRA Accounts Rules 2019 which the legal sector is still getting to grips with some of the changes.

 

In this brief article we look at two of the most topical areas being raised by law firms and their COFAs.

 

 

Notification of disbursements

 

One of the leading questions raised has been regarding compliance with the new rule 4.3, which states that if a firm wishes to transfer money from the client bank account from funds held on account for a specific client to cover costs, the client or paying party must first be sent a bill or other written notification of these costs, before the transfer is made.

 

As ‘costs’ comprise of fees and disbursements, this is in contrast to the old requirements as it is now necessary to notify the client if the firm wants to take funds to cover disbursements.

 

Firms are now finding themselves in the position of having to choose between the additional administrative inconvenience of having to notify the clients every time they wish to transfer funds in the interim for disbursement, or face potential cash flow burdens. This will come down to a matter of policy, and will differ from firm to firm. It is helpful to highlight it has been mentioned that an email to the client will qualify as written notification to meet this requirement.

 

A further topical question has been in relation to disbursements that have been included on a bill, but not yet paid by the firm. Rule 4.3 refers to ‘costs incurred’, which, on the face of it, implies that funds can be transferred to cover disbursements that have been incurred but not yet paid, as long as the client has been notified. This has been queried with the regulators where anticipated disbursements had been included on a bill – could the firm transfer client funds to cover these which would be a fundamental change?

 

It is understood the regulators are considering the impact to the legal sector from the above changes introduced, in which firms have highlighted concerns that this area has become overly burdensome in contrast with any perceived added value to the underlying principle to safeguard client funds. 

 

Clients’ own accounts

 

Most commonly this is where someone in the firm is an attorney or deputy for the client. The new accounts rules impose a condition under 10.1 (b) that any client’s own bank accounts operated by the firm / solicitor need to be included within the full client funds reconciliation process.

 

This has been a very topical area and one which many firms have raised questions over the practical implications of meeting such a requirement, where previously the rules surrounding such accounts were less onerous.

 

In terms of compliance, step one is to identify all clients’ own accounts in operation, and create a central register as per the conditions under the old rules.

 

COFAs need to communicate with fee earners that it is vital that all accounts of this type are declared and listed on the central register, and establish a process to ensure that any new appointments are also captured when they arise.

 

Once this is in place, the firm will need to assess whether it feels it is able to comply with the new rule 10.1 (b), which is the primary application that should be adopted.

 

However, if the firm feels it is unable to meet the reconciliation requirements, then the SRA have issued separate guidance that can be applied. The compromise offered is that the SRA would not regard the firm to be in breach of the new rules if - ‘you take reasonable steps to record the position and are satisfied that the client’s money is not at risk.’ This involves maintaining the following:

  1. a central register
  2. a record of all bills raised on the matter
  3. a separate record of transactions carried out by the firm / solicitor within the client’s own account

 

Keeping the separate record would be the main procedural change to be introduced by firms here. The SRA have not provided any further detail on what constitutes a ‘separate record’ so it will be up to the firm to decide what is reasonable, for example, it could be a spreadsheet updated each time an initiated  transaction is made.

 

The new rules have brought about a number of changes, and it is likely to take some time for the new requirements and reduced level of detail to really settle in. No doubt there are other topical matters arising from the changes in addition to the two summary points covered in this article.

 

If you require any further guidance on the above or any other practice financial matter, please get in touch with Jason Mitchell or any member of our specialist legal team.

 

Contact

 

PKF Francis Clark has a dedicated team that specialises in the legal sector.

 

Jason Mitchell – T: 01872 276477

E: jason.mitchell@pkf-francisclark.co.uk.

 

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This publication is produced by Francis Clark LLP for information only and is not intended to constitute professional advice. Specific professional advice should be obtained before acting on any of the information contained herein. Whilst Francis Clark LLP is confident of the accuracy of the information in this publication (as at the date of its production), no duty of care is assumed to any direct or indirect recipient of this publication and no liability is accepted for any omission or inaccuracy.

 

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