Phase three of the changes to the Solicitor Accounts Rules are due to be implemented during 2019 and have now been formally approved by the Legal Services Board. At the time of publication, an implementation date has yet to be announced but we would anticipate this being effective from April. The changes have been on the agenda for a while, so it is worth bearing in mind the areas that should remain high on the agenda for member firms.
The Solicitors Regulation Authority (SRA) are simplifying the Accounts Rules by focusing on key principles and requirements for keeping client money safe, rather than the extensive book of rules that are currently in place. A principle-based approach and a move towards outcomes focused regulation will provide firms with greater flexibility to manage their business.
In terms of the practical implications of the new Rules, there should not be a huge difference in the approach for many firms who already have robust systems and procedures in place. These would still be relevant under the new Accounts Rules as the fundamental principles of the rules
The key principles of the new Accounts Rules reiterate:
- Keeping client money separate from firm money.
- Ensuring client money is returned promptly at the end of the matter.
- Using client money for its intended purpose (i.e. not providing banking facilities).
The 13 principles included in the new Accounts Rules will be easier for firms to understand which should increase compliance and enable firms looking at this afresh to consider reducing the complexity of internal compliance. The SRA should therefore continue to receive fewer qualified reports as a result of these changes. However, it is imperative that firms have a good attitude towards compliance and are able to evidence that the firm has adequate systems and procedures in place to ensure that client money is kept safe.
One of the key controls to implement, if not done so already, is the maintenance by the Compliance Officer for Finance and Administration (COFA) and Compliance Officer for Legal Practice (COLP) of a record of instances of non-compliance, this will help to identify common issues and therefore, where more rigorous controls require implementation. It should also include justification for whether the breach is deemed to be reportable to the SRA or otherwise, and ideally, the remedial steps taken to avoid similar breaches going forward.
The proposed changes continue to stress the importance of returning funds to a client promptly at the end of a matter so matter balance listings should be reviewed regularly to determine any matters which are complete, such that funds can be returned to clients.
So whilst the implementation of a new set of Accounts Rules may seem like a daunting prospect for the accounting function of a firm, in reality, the implications of these changes are fairly minimal for the day-to-day processing. However, for firms where systems and controls may be lacking, it is essential that these are brought in, and monitored, as soon as possible.
For further information please speak with your usual Kreston Reeves contact or Chloe Dray here or on +44 (0)330 124 1399.
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