Posted on 24/06/2020 by admin
On 25 November 2019, there was a series of changes to Solicitors Accounts Rules. The Solicitors Regulation Authority (SRA) simplified the existing rules to give solicitors greater freedom to use their professional judgement when managing client money. Although client money is still effectively safeguarded, the onus will now be on solicitors to agree their own principles, which should be set out in an internal procedures manual.
Here is a summary of the changes to Solicitors Account Rules...
• Rule 1: Application section - simply sets out who the rules apply to - much of the detail of the original rules 1 to 6 was repeated elsewhere, so this has been removed.
• Rule 2: Client money – a new definition of client money, which is more succinct and refers to regulated services. Client monies can be paid “promptly” instead of a stated fixed time frame. There’s also no differentiation between professional disbursement and fees; both are considered client money. No more “agreed fees” - if no bill is issued, this would be considered client money.
Under Rule 2, client money can be held in an office account, providing it is only for fees and incurred disbursements (no time frame on payment) and you do not hold a client account for any other reason. You will be required to have a clear explanation of how the funds are being held and if they are being used for the reason intended.
• Rule 3: Client account – although no significant changes to this rule, the SRA will now be focusing more heavily on the use of banking facilities.
• Rule 4: Client money must be kept separate – the previous rule stated a 14-day period for the transferring of costs. Under the new rule, this time frame can be replaced with the word “promptly”. As a firm, it will be up to you decide what you deem to be reasonable in terms of a “prompt” timeframe.
• Rule 5: Withdrawals from the client account – no significant changes to withdrawals from client accounts. There is now an online form for charity payments above £500.
• Rule 6: Duty to correct breaches upon discovery – clear policies and procedures need to be set out to monitor compliance and record breaches. A compliance software with a breaches register is recommended.
• Rule 8: Client accounting systems and controls - the requirement for internal records to be accurate and up to date. This is particularly applicable to Rule 2 (holding client money in the office account). As accountants will be looking at office credit balances in greater detail. We would urge you to carry out bank reconciliations correctly, which includes being signed off by a COFA or a manager.
• Rule 11: Third-party managed accounts - please speak to our team about the practicalities of changes to this rule; it may be beneficial to your firm if you are offering one service for example immigration or dispute resolution.
Other rules that did not receive the same level of amendment are as follows:
• Rule 7: Payment on interest- the payment of interest no longer needs to be paid into the office account.
• Rules 9 and 10: Joint accounts / clients own accounts – no significant changes to how you operate a joint account and the client’s account.
• Rule 12: Obtaining and delivery of accountants report – accountants will issue updated engagement letters. Although we’re not required to submit a qualified report, like many other firms, we will continue to do this for you.
• Rule 13: Storage and retention of records – you will still need to store and retain accounting records for 6 years.
As solicitors now need to have an internal procedures manual that is equivalent to their own set of rules, there needs to be a stronger focus on internal policies, systems and controls.
Regardless of the rules, an up-to-date internal procedures manual is good practice for any business; this ensures continuity, should a staff member leave or fall sick. Also, if you decide to sell the firm, the manual will prove to be a useful document in the onward sales process.
Our tip would be to try the post-it note approach. Write each step of your manual onto a post-it note, position this accordingly on a board, take a photo, and then write each step up.
If your legal practice needs advice on the new Solicitors Accounts Rules, please get in touch by emailing: email@example.com
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