In November the Legal Services Board (LSB) approved the Solicitors Regulation Authority (SRA’s) ‘Looking to the Future’ reforms, giving the green light for regulatory changes which are expected to be phased in over the next year or so. The ‘Looking to the Future’ reforms are the consultations which have been carried out by the SRA over the last few years focusing on areas including the simplification of SRA Accounts Rules, shortening the SRA Handbook and encouraging transparency from law firms.
So, looking at the new SRA Accounts Rules, what’s changed?
The existing 52 prescriptive rules have been condensed to just 13 principles-based rules which are split into four parts. There is little in the way of detailed definitions or time frames creating scope for firms to develop policies which are suitable for them and their practice. Some of the changes are:
The new rules do not specifically refer to the requirement to maintain a breaches register, however, there remains a requirement for the COFA to report serious breaches to the SRA promptly. The COFA would need to be able to demonstrate to the Reporting Accountant and the SRA that they have the ability to do this so it would seem sensible that firms continue to maintain a breaches register. Remember, that a number of the same “small” breaches could indicate a “serious” underlying problem that should be reported to the SRA.
Under the new rules, there is no longer any distinction between professional and non-professional disbursements. If your firm currently transfers money from client account to office account for incurred unpaid non-professional disbursements before billing, your process will need changing as this is not permitted under the new rules. The “client money” definition in the new rule’s states that “client money is that which is held in respect of fees and any unpaid disbursements held or received prior to the delivery of a bill”. The existing rules make the clear distinction that client money is that held in relation to unpaid professional disbursements only, whereas the new rules simply refer to unpaid disbursements.
It is now a requirement that the client account reconciliations (prepared at least once every five weeks) are signed off by the COFA or a manager. Previously this was suggested in the guidelines to the rules but under the new rules has been formalised as a definite requirement. The COFA or manager signing the reconciliation has to investigate and resolve any differences promptly.
Operating a client’s own account
If you operate a client’s own account, it is now a requirement of the new rules to prepare client account reconciliations for these at least once every five weeks as is done with “normal” client money. Now, it remains unclear as to whether the SRA are expecting this to form part of the global client account reconciliation or if this should be done as a separate reconciliation.
What should law firms be doing?
As mentioned earlier the new rules are much more principles-based and depend upon each firm determining policies that suit their business and adhering to these. The policies and procedures adopted by firms should be clearly documented. The Reporting Accountant is required to exercise their judgment in relation to the risk to client money and as to whether the policies adopted by the firm are reasonable so it may be advisable to liaise with the Reporting Accountant when determining your policies.
For further information or to make inquiries regarding a training session on the new rules, please contact Lindsey Shepherd at our Bolton office 01204 551100.View all news