The Solicitors Regulation Authority (SRA) have confirmed that the introduction of phase three of the changes to the Accounts Rules will be implemented on 25 November 2019.
Whilst these changes are unlikely to have a significant impact on firms already compliant with the 2011 rules, it is important for all firms to understand the potential implications ahead of their introduction.
Simplification of the Accounts Rules
The rules have significantly decreased from 52 down to 13 to remove duplication and continue the move towards outcomes focused regulation. There is an increased focus on principles rather than a prescriptive set of rules but it is important to note that there is no reduction or dilution in obligations to keep money safe.
A Simpler definition
A separate exemption has been introduced whereby if the only client money held by a firm is in respect of advance payments for fees and unpaid disbursements, this money does not have to be held in a client account. This may remove the need for some firms to maintain a client account and could potentially result in Professional Indemnity Insurance and other operational savings.
Third-Party Managed Accounts (TPMA)
These represent an opportunity for firms to outsource the holding of client money and could result in a reduction of time and resource being spent on managing client accounts. There are not many providers on the market at present, but this may become a more attractive option going forward when the technology becomes more innovative.
There remains a strong focus on ensuring that client money is returned promptly to the client as soon as there is no longer any proper reason to hold those funds. It is integral for firms to have adequate systems and procedures in place to identify and return any potential residual balances.
Transfer of costs
A new requirement dictates that firms ‘must first give a bill of costs, or other written notification, before transferring costs’. This is inclusive of disbursements so some firms may require a change of policy, particularly if incurring large disbursements, for example, when dealing with personal injury cases.
The requirements to complete five-weekly three-way reconciliations remain the same, with the additional formalisation of the need for these reconciliations to be signed off by a manager of the firm.
Operation of a client's own account
The new rules indicate that three-way reconciliations are now required when operating client’s own accounts (ie deputyship or power of attorney). This is a key point which may have big implications on firms operating this type of account so it is important for these firms to review their systems and procedures. There remains some ambiguity as to what is expected with these reconciliations so it is important to justify any treatment.
Aside from the point in respect of operating a client’s own account and the transferring of costs, it is unlikely that the introduction of the new rules will have a significant impact for those firms already compliant with the 2011 rules. However, it does represent a good opportunity to review the systems and procedures that you already have in place.
A factsheet on the upcoming changes is available on request. If you would like a copy, please contact us.