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SRA Highlights Concerns Over Interest Rates And The Client Account
May 6, 2024

1. Introduction

      In the April Solicitors Regulation Authority (SRA) update, the regulator shed light on a concerning trend, which was identified in The Law Society’s Financial Benchmarking Survey. According to the figures revealed in the survey, there has been a significant surge in interest earned on money held in client accounts, with the total net interest income skyrocketing by over 1,000% to £27.5 million compared to £2.6 million in 2022.

      This notable increase has sparked continued scrutiny and questions from within the legal community, particularly during the SRA’s recent Virtual Compliance Conference during their Accounts Rules session. The panel addressed queries about the substantial interest gains from client accounts and the agreements firms have in place with clients.

      In response, the SRA reiterates the importance of clarity when talking to clients or other connected parties about interest rates and the requirement to ‘properly account to clients for any financial benefit you receive as a result of their instructions, except where they have agreed otherwise’ (Rule 4.1). Rule 7 of the Accounts Rules emphasises the obligation to fairly compensate clients for interest earned on their funds and says:

      • You account to clients or third parties for a fair sum of interest on any client money held by you on their behalf.
      • You may by a written agreement come to a different arrangement with the client or the third party for whom the money is held as to the payment of interest, but you must provide sufficient information to enable them to give informed consent.

      Although most firms may not be affected by interest concerns due to banking account charges cancelling out any ‘financial benefit’ or the temporary nature of funds held in client accounts, there are reports of instances where some firms have profited from holding large sums for extended periods. There are also concerns about some firms failing to account adequately to their clients regarding the accrued interest.

      The SRA emphasises the need for law firms to engage in open dialogue with clients regarding interest rates and payments, especially in the absence of predetermined agreements. Any evidence of unfair practices will prompt swift action from the SRA to ensure compliance with regulatory standards.

      To read the update in full, click here.

      Read some of our previous articles for related information:

      Accounts Rules – SRA Raises Concerns

      Codes of Conduct and SRA Accounts Rules

      2. 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 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

        3. 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:

          • Risk Management and Compliance Review— This service provides a review and analysis of a firm’s approach to risk and compliance and will help a firm to identify where its approach to risk management and compliance may have gaps enabling them to be ‘plugged’ and for a firm to operate an efficient approach to risk (which is expected by insurers and will help control Professional Indemnity Premiums) and compliance with the SRA Standards and Regulations (which is expected by the Solicitors Regulation Authority).
          • 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 to multi-office, multi-service firms with overseas offices.
          • Auditing—Procedural staff, systems, and files are audited to ensure the procedures are up to the required standard and implemented at the 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: –

            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.

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