Following a number of high-profile law firms going insolvent, that put clients funds at risk, 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 these changes, all law firms should take steps now to understand the new requirements 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 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.
In addition to the accountant’s reports firms will be required to submit further information 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, with financial penalties applying where deadlines are missed.
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 senior 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.
Law firms will need to make the appropriate preparations as soon as possible to ensure that systems are fully equipped to meet the additional compliance obligations.
For smaller law firms that were previously exempt, there may be substantial preparation required.
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, may be required to obtain an accountant’s report for the first time and should familiarise themselves with the process.
Similarly, larger law firms should begin considering how compliance responsibilities will be separated from senior decision-making roles.
Identifying and training suitable individuals for these positions may take time, making early preparation essential.
Getting support from a trusted accountant during this transitional period can also help firms understand their obligations and implement appropriate processes.
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 preparing an accountant’s report for the first time or seeking reassurance that your existing procedures remain fully compliant, our specialists can assist you.
We can also help compliance officers to understand and meet their responsibilities, further reducing compliance risk and strengthening governance arrangements across the firm.
Protecting client money and keeping your law firm compliant will require careful planning, robust processes and the right professional support.
Get in touch with our team to prepare for the upcoming changes to the SRA Accounts Rules 2019.
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