The 'new' SRA Accounts Rules changes - their impact on law firms | LTC

The 'new' SRA Accounts Rules - their impact on lawyers and firms

Law Training Centre’s Eve Dullabh explains how SRA Accounts rules changes affect lawyers and firms
The new Accounts rules mark the end of a lengthy period of revision by the SRA of its Account rules and of its regulations for safeguarding clients’ funds.
This has been a streamlining process. The new Rules are shorter, more flexible and more focused upon outcomes. Firms are now free to set their own time frames and – instead of holding monies in clients’ accounts – can decide to use accounts managed by third parties instead. In short, firms, practice managers and sole practitioners now have a lot more control over how they comply with the Rules and handle client money.
Over the years, the SRA has thinned its rulebook – in 1998, it was 50 pages long and highly prescriptive. In its latest form it runs to 7 pages. These Rules should be read alongside the SRA’s Policies. These are so lawyers:
  • Uphold public trust and confidence in their profession
  • Act independently, with honesty and integrity
  • Act in the best interests of each client
A summary of the changes
  • The Rules more explicitly impose joint and several liability for compliance upon a firm’s managers and employees.
  • Client money is now defined as money held or received by you:
  • relating to regulated services delivered by you to the client
  • on behalf of a third party in relation to regulated services delivered by you
  • as a trustee or officeholder
  • in respect of your fees and any unpaid disbursements held or received prior to delivery of a bill
  • If money received or held has no connection with the provision of a regulated service, it is not client money and therefore it is prohibited from being in a client account. The new Rules also prohibit the provision of a banking facility through client account to clients or third parties and specifies the need to connect transfers or withdrawals with the delivery of a regulated service. You should not hold client money for longer than you need to.
  • You may no longer need a client account at all provided the client money you hold or receive falls within certain specifications. In these circumstances, alternative arrangements with the client are allowed. Where money has been held in client account “on account of costs and disbursements”, the requirement for a designated client account could disappear altogether.
  • Third-party managed accounts are permitted for the purpose of receiving payments to and from or on behalf of clients in respect of regulated services. However, the client must be informed and must understand the nature of the contractual arrangement you have with that third-party.
  • Client monies are “in respect of your fees and any unpaid disbursements if held or received prior to the delivery of a bill for the same”. The intricacies around “normal” and professional disbursements have been removed.
  • Under specific conditions, the new rules allow for some flexibility regarding how promptly client monies are paid into account and whether funds are available on demand.
Change can be gradual
Some of the changes reflect the SRA’s desire to make money laundering more difficult to put into practice. However, others are simply to make things easier and more flexible for lawyers. Nevertheless, some firms and practitioners may choose to adhere to the former prescriptive working practices while the changes bed in.