SRA Accounts Rules changes… Where we are up to?

Phase 2 of the SRA Consultation reviewing the Handbook and the SRA Accounts Rules has now been in force since November 2015 and firms will have had their first compliance reviews under the new approach, if not now exempt, and will have noticed a difference on how our visits are conducted and the content of the Reports submitted, or not, to the SRA.

On 13 June 2017 the SRA released their response to the consultation originally released in June 2016. One of their quoted aims was to “remove unnecessary bureaucracy” and “much simpler Accounts Rules”, while still maintaining safekeeping of client money.

There are expected to be some major changes, for example, the simplification of the Rules as promised; the change in the definition of client monies; and an alternative to the holding of client money with the introduction of third party managed accounts (TPMA).

We have been recently advised that Phase 3, including the new Accounts Rules, is not likely to be implemented until Autumn 2018.

Definition of client money

The basic definition now says that monies paid in advance for fees and unpaid disbursements, prior to the delivery of the Firm’s bill, is client money. But if this is the only form of client money held then the Firm may claim an exemption and as long as the client agrees, the solicitor may pay this money into office account instead.

Simplifying the Rules

The proposed new Rules are only 7 pages long and there will be flexibility on how firms can comply because much of the prescriptive burden will have been removed. There remain  the key sections expected such as definition of client money, keeping this separate, withdrawals, remedying breaches, accounting systems.  But the detail has disappeared.

Use of a TPMA

It will be operated under an agreement with the 3rd party, the firm, and the client in an account that falls under FCA regulations.  The client must understand the arrangement and its implications. There is likely to be a cost incurred for this facility.  But this is one way that the SRA have suggested that Firms can move client monies out of compliance with their Rules.

Best practice

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.

The SRA and the Reporting Accountant will expect to see internal controls and procedures to protect client monies proportionate and appropriate to the size of the firm and its client base.

The SRA have promised to issue a “toolkit” to help Firms with guidance on how to comply with the much reduced regulatory regime.

If you would like to discuss the changes to the SRA Accounts Rules in more detail, or you would like to speak with a member of our team, please contact Karen Hain or call 01772 821021 to be put in contact with a member of our Professional Practices team.