By Sam Bacall, Director

Following a number of high-profile law firms going insolvent and taking client money with them, a consultation was launched to determine how the Solicitors Regulation Authority (SRA) could better safeguard legal clients.

The results of the consultation have now been made public, with an overhaul to the SRA Accounts Rules 2019 scheduled for early 2027.

Ahead of the changes, all law firms need to understand what is coming and how to prepare.

What is changing with the SRA Accounts Rules 2019?

The change in the way that the SRA Accounts Rules 2019 will be applied from the start of 2027 aims to ensure that risks are identified and dealt with much earlier than the current regime incentivised.

To achieve this, nearly all law firms will be pulled into the updated requirements that will see them file an accountant’s reports annually.

There does seem to be some limited scope for exemption but it is not yet clear what the criteria for this will be, only that such exemptions will require specific information to be proven.

Further key information will be provided alongside the annual accountant’s reports through a declaration to ensure that the SRA has a comprehensive sense of how client money is being stored and handled.

These filings will need to be made within six months of the law firm’s financial year-end and there will be financial penalties for missing a deadline.

Additionally, the SRA are taking aim at the way that law firms conduct themselves more generally.

It will no longer be acceptable for individuals in higher-risk firms to hold both a commanding position in the firm and serve as a compliance officer.

Currently, the definition of a higher risk firm is one with a turnover of more than £600,000 or that holds more than £2 million of client money.

The scope of this may change in the future and it is entirely possible that this restriction may be expanded to cover more law firms.

Partial exemptions can be sought, primarily in cases of small sole-owner-manager firms where there may not be staff members who fit the criteria.

Some firms that present different risk characteristics to larger or more complex practices may also be exempt, but this will likely be clarified once the full rules are approved.

How should law firms prepare for the changes to the SRA Accounts Rules 2019?

While the rules are still awaiting approval from the Legal Services Board, it is clear that major reform is on the horizon.

Different law firms will need to make the appropriate preparations as soon as possible to ensure that systems are fully equipped to handle the new responsibilities.

For smaller law firms that were previously exempt, there will be a lot of ground to cover before the end of the year.

Law firms that hold small amounts of client money with an average of £10,000 or less, or have a maximum balance that does not exceed £250,000, will be facing an accountant’s report for the first time, so need to learn what is required.

Similarly, larger law firms should begin the process of extricating the role of compliance officer from roles that involve making significant decisions about the firm.

It may take some time to find a suitable candidate and train a person for the new role, so beginning now is wise.

Getting support from a trusted accountant during this transitional period is also a good idea.

Our team can help you to understand how the changes to the SRA Accounts Rules 2019 will impact your specific law firm.

Whether you are adapting to an accountant’s report for the first time or simply want the confidence that it will be fully compliant, our professionals can assist you.

We can support larger firms by equipping compliance officers with the knowledge they need to effectively tackle the new tasks that await them, further reducing the compliance risk your law firm faces.

Protecting client money and keeping your law firm compliant are both vital goals that require a collaborative approach to fully achieve.

Get in touch with our team to prepare for the upcoming changes to the SRA Accounts Rules 2019.