Solicitor Accounts Rules Changes
The Solicitor Accounts Rules (SAR’s) are a set of rules put in place to regulate solicitors and law firms of England and Wales. They are governed by the Solicitors Regulation Authority (SRA) which is the independent regulatory body created by the Law Society.
The SARs were first published as part of Edition 1 of the Handbook issued by the SRA which came into effect on 6 October 2011. From 25 November 2019 the SAR’s will however all change.
The 46 detailed rules will be replaced with just 13 ‘principles-based’ rules allowing law firms much more flexibility as to how they ensure that client money is properly protected.
Shorter and more targeted than the existing rules, the new SRA Standards and Regulations focus on what really matters – the issues most important to protecting the public and their money. The removal of many prescriptive rules will reduce the burden on solicitors and law firms and allow solicitors greater freedom to use their professional judgement in considering how they meet the standards.
The key areas of change are:
- change in the definition of client money – particularly impacting on the treatment of disbursements
- removal of specific timeframes – allowing firms to determine, for example, appropriate timescales for the transfer of billed costs and the allocation of mixed payments
- introducing into the rules the option to hold client money in a Third-Party Managed Account (TPMA) instead of a client account.
In addition to the above, for firms that operate a client’s own account, there is an additional requirement to perform reconciliations at least every five weeks. Also, these accounts must be included when determining whether the level of client money held falls below the limits which allow the firm an exemption from the requirement to obtain or deliver an accountant’s report.
What should firms do?
How firms implement the changes is down to them, by stripping away outdated and unnecessary rules firms are given more flexibility to design and deliver their services around their clients. This is an opportunity to consider how the principles embodied within the new rules can be applied in a way that best suits the firm.
Firms will need to have systems and controls in place to ensure compliance, and the nature of those systems must be appropriate to the nature and volume of client transactions dealt with and the amount of client money held or received.
Decision-makers should be made aware of any proposed changes so that alterations can be agreed. This includes the managers, owners, compliance officers, supervisory and accounts team colleagues who need to agree on proposals suggested.
Current compliance documentation should be reviewed and updated. A fuss-free relationship with the regulator is facilitated by proof of compliance and these documents will – at the very least – need to be updated to reflect the language of the Standards and Regulations.
It is essential that all relevant staff are given appropriate training to understand the external changes. Untrained staff are a risk to themselves and a risk to the longevity of the business and should not be overlooked.
If current systems and procedures are in line with the rules and suit the firm’s needs then yes, a firm could choose to do nothing.
However, even if there are no plans to make any changes in the near future it will still be important to be able to demonstrate what those systems and procedures are.
Written policies and procedures are strongly advised to ensure that staff comply with set procedures and to be able to demonstrate that client money is properly protected.
In general, the reformed rules present a modernised, more accessible and a less prescriptive set of guidance. There are however some important additions and amendments, which may leave firms uncertain in particular situations. This is a good opportunity for firms to review procedures and make sure they understand how the new rules are likely to affect them, before they come into play.
The SRA have also confirmed that guidance to help solicitors and law firms prepare for the new Standards and Regulations will be published ‘over the coming months’, which we can only assume will be before the 25 November implementation date.
If you would like more information on how these Rule changes may affect you