The Solicitors Accounts Rules 1 year on
As part of our newly created ‘Technical Corner’ we want to bring you information that will help you to continue to grow in your career.
This month’s technical corner article comes from Robert Blech LLB, FCCA, ACA.
When the new Solicitors Regulation Authority Accounts rules became effective on 25 November 2019, we had no idea a global pandemic was around the corner!
Solicitors, especially those involved in the finance aspect of the firm, such as Compliance Officers for Finance and Administration (COFAs) have had to grapple with the implications of the new rules whilst dealing with the challenges of Covid-19.
Initially most firms did not make any significant changes as the guidance stipulated that if your systems and processes were compliant with the old rules, they would remain compliant with the new ones; however, many have since looked for opportunities within the rules to simplify or streamline processes.
Many of the changes have been warmly welcomed, such as a clear definition of law firms not acting as a banking facility, the emphasis on the importance of systems and controls and the broad range of guidance to support the rules.
However, some changes have been criticised for causing confusion, especially where detailed and prescriptive rules have been simplified or removed, leaving matters open to interpretation, such as the transfer of disbursements that have already been paid by the firm, a lack of detail about billing in advance and some confusion surrounding the operation of joint, or clients own accounts.
When the UK first went into lockdown the SRA stated that while they recognise these are exceptional circumstances and would take a proportionate approach to enforcement, they still expect full compliance. By now firms should have systems and controls in place to cope with any changes in working practices and we expect the SRA to start taking a stronger view on any minor, systematic / non-material repeated breaches.
Some of the most common breaches we’ve found have been:
- Clients own accounts and joint accounts reconciliations not being prepared every 5 weeks
- Client bank reconciliations not being signed by the COFA or manager
- Firms not having an adequate compliance policy and procedures manual
A complete change in many working practices and uncertainty in the market has increased the risk of breaches and professional negligence claims, which in turn has significantly increased Professional Indemnity Insurance premiums, so it’s important firms can show insurance providers that they have assessed these risks and have effective systems and controls in place to mitigate them.
Guidance from the SRA continues to be updated on a regular basis so firms should ensure they review any changes.
It will be interesting to see once the pandemic has ended, what long term modifications law firms make to compliance and how longer-term trading patterns will change. In any circumstance though, risk management is essential and good systems and controls are key to this.