SRA releases new SRA Accounts Rules guidance
On 4 July, the SRA released the first of its long promised guidance notes to support the forthcoming regulatory changes and the brand new SRA Accounts Rules.
Covering areas such as firm authorisation, operation of client accounts and joint accounts, accounting records, Accountants Reports and Third Party Managed Accounts (TPMAs), it is one of the largest information releases from the SRA in a single day in recent memory.
Remember that this guidance doesn’t take effect until 25 November 2019 when the changes to the SRA Handbook come into force, but what have we learned from this flurry of new information, and what difference will this make practically for us all when the day arrives?
It is fair to say that there is little in the way of surprises, and there is some comfort in the knowledge that the SRA doesn’t expect firms to fundamentally change what they are doing. If a firm is satisfied that it is complying with the current Accounts Rules, it is likely that it will feel the same under the forthcoming rules. It is therefore difficult to say that there are headline grabbing points within the guidance, but some highlights are as follows:
- The SRA gives further detail on what firms will need to tell their client if it claims the exemption under the new Rule 2.2 from operating a client account where the only client money received by the firm is in respect of fees and disbursements. The SRA expects firms to explain to clients the risks to their money where, for example, a firm becomes insolvent and how the level of protection is less than money being held in a client account.
- The guidance also points out that, where excess money is held at the end of a matter, the obligation to return the funds promptly remains, even where the funds are not being held in a client account, and also points towards other areas of the Accounts Rules that will still apply if claiming the exemption. This includes the need to send a bill or notification of costs to the client and there will still be a requirement to keep ledgers for clients, even where the client money is not being held in a client account. The SRA is reminding us all that this is an exemption from holding client money in a client account, not an exemption from having to comply with the SRA Accounts Rules.
- There is detailed guidance around helping firms keep accurate client accounting records, but it should be noted that this is not substantially different from the current Appendix 3 to the Accounts Rules: “SRA Guidelines – Accounting Procedures and Systems”. The level of detail is still lower though, and more easily digestible than before.
- Although the new rules are quiet on the subject of ‘business accounts’ (what we once knew as the office account), the guidance makes it clear that there is still a clear importance for firms to keep business account transactions up to date and to review the impact of, for example, office ledger credit balances.
- There is separate guidance on joint accounts, but the lack of any mention of clients’ own accounts, and the need to start including those in the reconciliations, is conspicuous by its absence. This will surely be a point of focus for firms and Reporting Accountants.
- There is guidance for Reporting Accountants too, covering the key areas that we should be considering when carrying out our work and when deciding on whether a qualified report needs to be submitted to the SRA. The detail is very similar to the existing guidance issued by the SRA late in 2015, and focuses on the need for accountants to exercise their professional judgement, as well as setting out ‘serious’ factors that would normally lead to a qualification, and ‘moderate’ factors that may, depending on context, result in a qualification. Notice that the provision of banking facilities still appears prominently as a serious factor, though the SRA is now able to signpost its detailed guidance on the subject and case studies that were issued last year.
- There is some further guidance on the use of Third Party Management Accounts (TPMAs), including what firms need to tell their clients, what they need to tell the SRA and the types of accounts that can be used. Firms that I have spoken to still seem to be viewing these accounts with some caution and so it remains to be seen how widely they are adopted.
Though there is clearly a lot of detail, there are areas where we are left asking questions.
Aside from how to handle clients’ own accounts, will there be any changes to the way in which firms are able to deal with residual balances by paying them to charity? The guidance is quiet on this particular subject, and so we are left assuming that it is captured by the wording in new Rule 5.1 that says client money may be withdrawn from a client account “..on the SRA’s prior written authorisation or in prescribed circumstances.”
Director - Audit
Saffery Champness LLP
The guidance can be found at: www.sra.org.uk/solicitors/guidance/guidance.page