1. Introduction

The Solicitors Regulation Authority recently expressed concerns over the increasing number of firms failing to meet their obligations under the Account Rules. In particular, it is felt that some firms are failing to meet the requirements under two specific areas, including Rule 3.3, which states solicitors ‘must not use a client account to provide banking facilities to clients or third parties, and obligations under Rule 12 regarding obtaining and delivery of accountants’ reports.

 2. Client accounts and accountants’ reports

Any firm that has an active client account has an obligation under Rule 12 to:

• obtain an accountant’s report for that accounting period within six months of the end of the period
• deliver it to us within six months of the end of the accounting period if the accountant’s report is qualified to show a failure to comply with these rules, such that money belonging to clients or third parties is, or has been, or is likely to be placed, at risk

The regulator said, ‘A reputable and well-run practice should have no problem adhering to these rules, and a breach of them could lead to disciplinary action’.

There are exemptions for firms to obtain a report, for example, if all of the money held in the client account has been received from the Legal Aid Agency.

Account Rules provide a framework designed to safeguard client funds and ensure that they are not put at risk and are an essential part of the SRA Standards and Regulations.

To ensure compliance with these rules, firms must establish appropriate systems and controls that align with the nature and volume of client transactions and the amount of client money held or received.

 3. Banking facilities rule

The SRA Accounts Rules include Rule 3.3, which states solicitors ‘must not use a client account to provide banking facilities to clients or third parties. Payments into, and transfers or withdrawals…must be in respect of the delivery of regulated services’. This rule was introduced initially in 2004 to specifically address the problem that some law firms were providing clients with banking facilities when they did not have access to one.

To help firms remain compliant and act as guidance to this rule, the SRA has been updating its published case studies to provide law firms with a comprehensive understanding of instances where depositing funds into the client account may not be appropriate. The newly added scenarios offer further guidance to ensure clarity and a better-informed decision-making process.

Paul Philip, SRA Chief Executive, said: ‘It is really important that firms don’t use the client account as a banking facility – it can open the door to money laundering or help people inappropriately hide away assets.

‘This rule generates a lot of queries and I’ve been asked about it a number of times when meeting with local law societies in the last year. We want to support firms to help them remain compliant. We hope these case studies prove useful.’

You can view these case studies here: case studies.

 4. Accounts and Finance Compliance

Does your firm have a documented accounts procedure? To demonstrate that client money is protected correctly, you must have a documented accounts manual, policies and procedures to comply with the SRA account rules and ensure your staff comply with your procedures. If you are concerned that you do not have the correct documents and procedures in place, or if yours is out of date, our Accounts and Finance Service has been devised to provide law firms with an effective solution for the implementation and management of their procedures for managing the office generally and the accounts processes. The Strategic Partner can help deliver, create, and maintain accounts manuals and procedures, including firms with or without Lexcel and other quality kitemarks such as CQS, WIQS and SQM. In addition to drafting the policies, we will train your staff to ensure there is a comprehensive understanding of the policies and the requirements of the firm.

For more information on this service, please download our Accounts and Finance Manual Brochure

 5. Regulatory Guidance and Support from Industry Experts

At The Strategic Partner, we work with firms and their COLPs and COFAs to assist them with the management of risk, compliance, and regulation through a range of training and outsourced support solutions. Our goal is to ensure the firms we work with have and retain a compliant structure enabling the firms, their managers, and owners to focus on running their businesses and servicing their clients.

If you believe your firm may be at risk or wish to confirm your firm is achieving the required standard, we offer a range of compliance solutions at The Strategic Partner, including:

• Review – A review of the firm’s approach to regulation and compliance to include all regulatory requirements and AML procedures. The output of this provides the firm with a written gap analysis and solutions to remedy any issues.
• Training – Whether you seek training on a 1-2-1 or group basis, The Strategic Partner has a range of training courses and mentoring programmes to suit any firm. We can also design any additional bespoke courses that you need. We have provided training to firms of all sizes, and our clients range from sole practitioners through to multi-office, multi-service firms with overseas offices.
• Auditing– Procedural staff, systems, and files to ensure the procedures are up to the required standard and being implemented at case level with a report of the outcome.

Packaged Solutions – Implementation of robust solutions to ensure the firm achieves compliance and then maintains compliance through the provision of ongoing support and assistance: –

Risk, Regulation and Compliance Service (including AML)

Risk, Compliance, AML Guidance and Register Administration Service

Get in touch with The Strategic Partner

For more information on The Strategic Partner and to discuss how we may be able to assist in accelerating your risk management or compliance and regulation or simply to keep this up to date you can call us on 020 3911 9710 or email us info@thestrategicpartner.co.uk.

You can view and download the PDF version of this article here.