Are you ready for the new SRA Accounts Rules 2018?
The long awaited and in part controversial Draft SRA Accounts Rules will not come into force before Autumn 2018 – but are you and your firm ready?
June 2017 saw the publication of the Rules, however, prior to printing, the SRA apparently backtracked on some of the more contentious elements during a period of feedback.
The main aim of the process was to simplify and modernise the legal system, the SRA revised the Accounts Rules in 2016 following a consultation. The consultation results saw a huge reduction in the proposed rules – the total falling from a whopping 52 to 13. This drastic reduction allowed greater flexibility in business decision making and gave law firms the ability to judge independently.
This year’s rules continue along the same path of simplification as the new draft is just 7 pages long and contains only 12 rules.
During the consultation period, the definition of client money brought a lot of criticism. The initial proposal to amend the definition of client money so that it would essentially exclude payments on account of costs and certain disbursements as being treated as client money produced a great deal of disapproval.
However, the new definition now includes money held by a firm in respect of fees and any unpaid disbursements if received before the delivery of a bill for them. The new word ruling is as follows:
Rule 4: Client money must be kept separate
4.1 You keep client money separate from money belonging to the authorised body.
4.2 You ensure that you allocate promptly any funds from mixed payments you receive to the correct client account or business account.
4.3 Where you are holding client money and some or all of that money will be used to pay your costs:
(a) you must give a bill of costs, or other written notification, to the client or the paying party;
(b) this must be done before you transfer any client money from a client account to make the payment; and
(c) any such payment must be for the specific sum identified in the bill of costs or other written notification and covered by the amount held for the particular client or third party.
Furthermore, another major change which could cause complications is concerns over billing prior to transferring costs from client to office accounts. This now applies to the firm’s costs rather than the firm’s fees. Importantly, the definition of ‘costs’ is a reference to the firm’s profit costs and disbursements.
In the current rules the definition of “fees” is purely the profit cost element of the bill. Under the new forthcoming rules, a firm cannot transfer funds held in a client bank account to cover disbursements paid out of office monies on behalf of the client, prior to giving a bill to the client.
Even though the new rules are simpler and shorter, the SRA has confirmed that they intend to publish an additional guidance which will give clarification of the rules. The SRA confirmed the guidance is expected to cover the following areas:
- Acting as a trustee and client money
- What is client money
- Name of client account
- Withdrawals to make payments to Charity
- Who can make withdrawals from client account?
- Residual balances due to a client
- Requirements to pay interest
- Accounting records and systems
- Accountant’s Reports
- Record keeping around operation of joint accounts
- Operation of a client’s own account
- Treatment of legal aid money/monies received relating to formal appointments (insolvency)
- Use of Third Party Managed Accounts
- Client account as a banking facility
- Waiver provisions
- Out of scope monies in an MDP
As the new rules will not come into force before Autumn 2018, they will remain in draft but will be subject to another consultation where minor amendments will most likely be on the cards.
Although it is believed the impact of the rules may be minimal for firms, clearly, the proposed new rules will effect the conveyancing sector, in particular with regards to client money.
As a conveyancer, do you think the proposed new rules will impact the home buying processes and procedures?