Almost two months after the SRA released its guidance on the new SRA Accounts Rules 2019, a new guidance note has been issued clarifying the requirements of rule 10 for the treatment of client’s own accounts.
There was some confusion when the first draft of the new rules was made available, as rule 10 stated that if a firm operated any client’s own account, then they must:
- Obtain bank statements at least every five weeks;
- Carry out reconciliations of those accounts every five weeks; and
- Keep a record of the related bills or other written notifications of cost.
Rule 8.3 requires for all client accounts, reconciliation of the bank statement balance with the cash book balance and the client ledger total. The issue with client’s own accounts, certainly for all of the law firms we work with, is that no cash book balance or client ledger total exists. In a lot of cases they will not even have access to the bank statements on a monthly basis. So, what was the SRA trying to achieve here and why does rule 9, covering joint accounts, not ask for reconciliations as well?
Previously, whilst records of bills and other written notifications of costs have always been required, law firms have not had to maintain anything for client’s own accounts, apart from a central register. This means that where an individual solicitor was appointed to operate a client’s own account as the sole signatory, there was no level of oversight required by the SRA Accounts Rules. Clearly, if there is more than one signatory on the account, or the account is a joint account, there are other parties able to monitor the transactions being performed.
The SRA’s new guidance note states that if a firm is not able to receive bank statements every five weeks, or to perform reconciliations, then they will not consider the firm to be in breach of rule 10. They must, however, take reasonable steps to record and satisfy themselves that client money is not at risk. To ensure this, they expect a central register to be maintained (which all firms should have already), and to keep a separate record of the transactions carried out by you or on your behalf in respect of the client’s own account.
We would recommend that client’s own accounts are subject to regular file reviews to ensure that you have documentation to support the transactions performed. Reporting accountants are also likely to start asking to review these accounts as part of the annual audit, so you should try to have this in place before 25 November 2019.