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SRA Regulatory Reforms by Sponsor PKF Francis Clark
THE SRA ACCOUNTS RULES 2019 ARE ON THE WAY
The SRA has announced that new regulations regarding changes to Accounts Rules and other areas of the code of conduct will officially come into force on 25 November 2019.
Supporting guidance will be released over the coming months covering the Account Rules and the practical application of the SRA Principles.
Now that the official implementation date has been confirmed for later in the year, alongside the announcement that supporting guidance will be released, it will allow time for legal practices to prepare for the changes.
Overall the existing SRA Accounts Rules 2011 contain a total of 52 rules and in the 2019 reformed version there are just 13 rules.
The new rules continue to build on a principles-based regulation model and remove the perspective nature of the existing rules.
Key changes include:
- Revised definitions of client money – no longer any reference to office money
- No concept of professional disbursements
- COFAs will be formally required to review and sign off the three way client funds reconciliations
- All legal aid monies for costs can be held in office bank accounts
- Clients’ own accounts will form part of the total client funds reconciliations
- For firms which only receive funds in advance for costs and disbursements, there is an option not to operate a client bank account to hold these
- Time limits have been removed, including the 14 day rule to transfer earmarked client funds towards issued bills of cost. Firms will now have the option to develop their own policies on specified time frames
- Firms will now need to send a bill or other form of written notification to clients for disbursements paid from the office account before they can take the funds from the client account
- Firms will have the option of using Third Party Managed Accounts (TPMAs) to separately hold client funds
- In certain situation firms will no longer be required to send cease to hold reports to the SRA.
Whilst the rules have been significantly condensed there are still some fundamental principles which remain:
- Undertaking the three way total client funds reconciliation every 5 weeks
- Prohibition on using a client account to provide banking facilities
- The criteria for the setup of a client bank account
- Client account withdrawals are appropriately authorised, are only made in relation to a specific client for the intended purpose and where sufficient funds are held on their behalf
- Duties to correct breaches of the rules promptly on discovery
- Certain requirements surrounding accounting systems and record retention.
The SRA will be issuing separate guidance to help firms navigate the changes and other areas not contained in the new rules, such as the donation of client funds.
Firms should also consider developing documentation of new policies. This would include as a minimum:
- Banking client account cheques promptly
- Ensuring mixed receipts are properly banked and monies “separated” promptly
- Dealing with unpaid disbursements into business account (office)
- Transferring monies after bills given to client or paying party
- Appropriately authorising payments from client account
- Repaying balances at conclusion of a matter
- Ensuring balances are only retained in exceptional circumstances
- Dealing with balances that a firm has been unable to return and ensuring property records kept
- Payments in lieu of interest to clients or third parties
- Timely preparation of client account reconciliations.
- Document their policies in a range of areas which are not covered by the new rules
- Document any variations to the existing rules they wish to apply
- Make any changes to processes and controls to comply with the 2019 rules
- Discuss the approach with their Reporting Accountant – don’t wait until they come to carry out their review
- Appropriate training for fee earners, COFA and finance team members.
In the short term it is likely that many firms will be not be significantly affected by the new SRA Accounts Rules. However firms cannot be complacent: there are a number of areas where most will need to adapt their approach and document their own policies.
PKF Francis Clark has a dedicated team that specialises in the legal sector. If any assistance is required with the new rules please get in touch.
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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