28 November 2023
Since the revisions to the SRA Accounts Rules in 2019 (which condensed the rules down to just 13 rules), the SRA has opened a number of consultations to clarify and revise a number of the rules. The consultation (which is now closed) aimed to enhance their understandability and make the rules less ambiguous to law firms. Below, we take you through the 3 proposed amendments to the rules;
It was potentially unclear whether firms could transfer client monies to the office account for costs yet to be incurred (eg anticipated search fees) or whether the work had to be done first before funds were transferred. Firms must safeguard money at all times and work (the provision of regulated services) must be provided first before a transfer of funds between client to office accounts can be made and a bill or disbursements raised. This has been clarified in the proposed wording changes to rule 2.1 which can be seen below.
2.1 Client money is money held or received by you:
There was apparent confusion over whether a bill was required to be raised specifically for disbursements before monies could be transferred into the office account. The SRA are therefore proposing to add an additional rule (4.4) and to amend the wording of rule 4.3 to make it more clear that a bill is not required to raise a notification of disbursements. Note that similar to point 1 above, this must relate to disbursements which have actually been incurred and paid rather than anticipated disbursements or disbursements incurred which are not yet paid. The proposed wording changes as well as the additional new rule, 4.4 can be seen below;
4.3 Subject to rule 4.4 where you are holding client money and some or all of that money will be used to pay your costs:
4.4 Rules 4.3 does not apply where you withdraw client money from a client account in full or partial reimbursement of money spent by you on behalf of the client, or the third party for whom the money is held.
Rule 10 relates to the operation of client own accounts which happens when, “a solicitor is appointed as a deputy (Court of Protection) or attorney (under a power of attorney). It gives the solicitor the legal access to make and receive payments directly from or into their client’s bank account. This is most frequent when the client is vulnerable/unable to self-advocate and does not have the capacity to operate their own bank account and bills still need paying.
The rules implemented in 2019 stated that the accounts would need to be reconciled in accordance with general client reconciliation standards. Meaning every 5 weeks, they had to be reconciled against obtained bank statements. Firms found this difficult for several reasons. The first being that it was often very difficult to obtain bank statements every five weeks, the second was being able to reconcile everything that appeared on those statements because not all entries would be undertaken by the solicitor.” (Source: TSG The Solicitors Group)
The important take away from the proposed amendments to rule 10.2 is that previously firms were required to obtain periodic bank statements and prepare reconciliations every 5 weeks for client own accounts and where this was impractical, a central register of both receipts and payments was required to be maintained. The frequency of the reconciliations is anticipated to change from a requirement of 5 weeks to 16 weeks.
Operation of a client’s own account
10.1 If, in the course of practice, you operate a client’s own account as signatory, Part 2 of these rules does not apply but you:
10.2 The record kept under rule 10.1b must be signed off by the COFA or a manager of the firm at lease every 16 weeks. You should promptly investigate an resole any differences that have been identified.
Subject to Legal Services Board approval these amendments were anticipated to be introduced from 1 November 2023. The consultation is however still under consideration and extended until 2 December 2023.
These amendments, alongside other non-Accounts Rules amendments can be seen here: SRA | SRA Standards and Regulations: minor amendments | Solicitors Regulation Authority and the full annex to the proposed rule and wording changes can be found here: Proposed amendments to the SRA Standards and Regulations.
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