Recommended reading: Changes to the Accounts Rules
It is essential that firms familiarise themselves with the SRA's proposals to pare down the Accounts Rules and focus on the core requirements, says Susanna Heley
The Solicitors Regulation Authority (SRA) Accounts Rules are, quite possibly, one of the dullest topics ever to form the subject of discussion. In saying this, I don't wish to downplay the importance of the Accounts Rules, because proper management of
client money is crucial to the maintenance of the trust placed in the solicitor profession. It goes without saying that clients need to be absolutely confident that their money is safe with us.
The details of the Accounts Rules have mostly been left alone since 1998. Definitions and rules have been tweaked but there have not been the same wholesale reviews which led to the replacement of the Code of Conduct in 2007 and in 2011 - until now.
Having made a number of changes regarding accountants' reports over the last year or
two, the SRA has now turned
its attention to the rest of the rules and has published its consultation on the long-awaited full review.
It wants to pare down and simplify the Accounts Rules.
It wants, for example, to say that funds received on account of costs and disbursements which the solicitor is liable to pay
(such as counsel's fees) should be treated as office money.
I imagine that the Bar will have something to say about that. Disbursements which the client remains liable to pay (such as stamp duty land tax) will still be client money. This consultation is important. In the run-up to the release
of the handbook, solicitors expressed a preference to retain prescriptive rules in relation
to the management of client account. This consultation departs from that approach. Interestingly, the SRA acknowledges that the Accounts Rules are 'too complicated and not focused on the key risks to client money'. Some might think that a telling admission.
The SRA's solution is to pare down the existing requirements and focus on the core requirements of keeping client money separate from firm money, using client money only for the purpose for which it is intended, returning it promptly at the end of a transaction, and proportionate requirements for accountants' reports.
The right balance?
The simplification of the Accounts Rules can only be a good thing. Few would debate the necessity of reform. Whether or not the SRA has found the right balance is a matter for consultation and consideration.
For my part, the draft rules are certainly shorter and simpler. They are less prescriptive and may require firms to review their client account arrangements if they come in as drafted.
For example, the new definition of client money differs from the existing version in a number of significant respects and, given that there remains a requirement to keep client funds separate, firms will have to get
to grips with where the new
line is drawn. More flexible arrangements are proposed in respect of receipt of mixed funds and the prescriptive 'one size fits all' approach to record keeping
is also modified to allow greater flexibility. The Accounts Rules are not the only rules in the SRA's regulatory reform sights. June has also brought us proposals for the reform of the handbook, although this is part of a phased approach. In this particular phase, the proposal of separate rules for entities and individuals, which many advocated several years ago, features prominently. While I can't recommend it as
a riveting read, it is certainly important and worth your time.
One may recall that the
SRA's reform proposals were formulated prior to the Brexit decision. How they will look in the post-Brexit world is not a foregone conclusion.
One likely consequence of Brexit for the profession may be the abolition of the recognised European lawyer status, which was introduced to comply
with directives relating to the cross-border recognition of qualifications within the EU. The impact of changes flowing from the likely loss of such automatic recognition remains to be seen.
It's also far too soon to tell whether there will be any relaxation of regulations introduced in furtherance of EU directives. Money-laundering, anyone? It seems unlikely given the international climate, but who knows?
As always, I urge those interested in the profession to comment on the consultations. The changes to the Accounts Rules, including the proposed introduction of third-party managed accounts, are significant and the proposed changes to the handbook go well beyond the regular tweaks. Happy reading!