13th November 2019New Solicitors’ Account Rules – are you ready?

The new Solicitors’ Account Rules (SAR) come into effect in just over 10 days’ time, on 25 November 2019, and these will have to be applied from that date. Although the number of rules has been drastically cut down from 53 to 13, it is important for solicitor practices to understand how the new rules apply to them. Here we look at some of the key points practices need to know.

What hasn’t changed

The principal focus is still very much on protecting client money. The following rules are still in force:

–        Keeping client monies in separate client bank accounts.

–        Maintaining the client records in a contemporary and chronological order.

–        Holding the client bank account at a bank or building society located in England and Wales.

Subtle changes

The new rules give clarity that money or funds held or received on behalf of clients in the performance of a regulated service is client money. Office monies are no longer defined.

It is still prohibited for solicitor practices to provide banking facilities to clients. However, it is now also clear that client monies should not be handled other than for the purpose of the regulated service which is being provided and for which the monies are intended to be used.

An accountant’s report is not required if client accounts do not exceed an average of £10,000 during the period and a maximum of £250,000 at any point in time. However, client accounts now include the operation of clients’ own accounts and any joint accounts, which were excluded in the old rules, and many solicitor practices may find that they are caught under the new rules.

More important changes

Whereas the previous rules were highly prescriptive and contained detailed guidance, the new rules are principles-based. Solicitor practices have the flexibility to decide how best to protect client monies. But these systems and controls will have to be documented, as well as being appropriate and effective. Additionally, solicitor practices will need to ensure that their accounting systems can cope with the new policies.

The rules no longer distinguish between professional and other disbursements, as outgoings for all disbursements are client monies unless a bill of cost for the specific items has been raised. This can be an issue for solicitor practices which have limited administrative support and unable to raise bills at short notice.

As before, a reconciliation of client bank accounts to client ledgers is required at least every five weeks. But there is new requirement for COFAs to demonstrate they have reviewed the reconciliation, which must also be signed and dated, and retained by the solicitor practice. Any differences should also be promptly investigated and resolved. Promptly is not defined but it is understood that the old 14 days rule would still apply as a guideline.

Separate records must be kept for clients’ own accounts and joint accounts. The new reconciliation rule also applies to clients’ own accounts. Moreover, there are new rules dealing with third party managed accounts.

Fees received in advance must be treated as client money. So, solicitor practices should take care and identify such receipts immediately.

Surplus monies must be repaid as soon as the solicitor practice has no proper reason to hold those funds. The new rules are silent on the requirement to inform clients if the funds are still retained and on any time limit for holding such funds. But further guidance from SRA is expected in this area.

Key points

The key areas for solicitor practices to plan ahead of 25 November 2019 are:

  1. Update and document internal policies and systems.
  2. Review what funds will be caught under the new client money rules.
  3. Bills of cost must be raised before disbursements are paid.
  4. Retain signed and dated copies of client account reconciliations.
  5. Be aware of the additional requirements affecting clients’ own accounts and joint accounts.

For more information or guidance on adopting the new rules, please contact us: Joel Courts, Mandy Janes, or Gilles Siow.

HW Fisher acts for a number of solicitor practices. The above article is provided for general information and professional advice should be sought before taking any action.

 

 

Key contacts

Giles Siow HW Fisher

Gilles Siow
Partner - Audit

020 7874 1159
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Joel Courts HW Fisher

Joel Courts
Partner - Accounts

020 7874 7812
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Mandy Janes HW Fisher

Mandy Janes
Partner - Audit

020 7874 1162
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