SRA Accounts Rules: â€¨A welcome change
The proposed overhaul of the Accounts Rules attempts to strike a balance between the administrative burden on firms and the protection of client money, writes Jennifer Martin
On 1 June 2016, the Solicitors Regulation Authority (SRA) released the third phase of its review of the Accounts Rules and, for us accountants at least, it makes for the most interesting read so far.
What has arisen out of the third phase is the biggest proposed overhaul of the Accounts Rules that we have seen for many years. The SRA has sought to 'rationalise and simplify' the rules, which the regulator itself describes as 'prescriptive and restrictive'.
At the heart of this consultation is the point that under the current Accounts Rules, many firms find themselves in breach of minor technical aspects. This in turn can lead to a qualified accountants' report, but with only minor technical breaches to the rules, it is unlikely that client money held by the firm is at risk. As a result, the provision of a qualified accountants' report can seem unjust, and this is further exacerbated by the fairly recent change in policy that only qualified reports should be submitted to the SRA.
In an attempt to reduce the administrative burden for firms holding client money, the Accounts Rules have been streamlined to 13 rules in total, covering the following overarching principles:
A firm must keep client money separate from its own money;
A firm must ensure that client money is promptly returned to the client at the end of the matter;
A firm must only use client money for its intended purpose; and
There are proportionate requirements for firms to obtain an annual accountants' report.
By setting out these overarching principles, it appears that the SRA is trying to strike a balance between protecting consumers and making life a bit easier for solicitors. Surely the simplification of the Accounts Rules would be a welcome change for practices, as some of the existing rules can result in a lot of administration and paperwork, as well as causing debate and requiring further clarification.
The consultation paper details some particular areas of the rules which are to be reviewed. These include the treatment of payments on account and fixed fees, the distinction between professional disbursements and other disbursements, and the treatment of mixed payments. In each of these cases, the rules are to be 'relaxed' to provide flexibility with respect to the use of a client account.
So what about the client? Are the proposed new rules enough to protect their money? The SRA appears to be confident that a sufficient level of protection will still be in place. If we take the example of the treatment of payments on account, the SRA summarises that the client will still have sufficient protection if they make the payment on account by credit card. The SRA has undertaken research into the number of transactions currently paid for by credit card but is also seeking views on the use of credit cards for payment. In our experience, payments on account through credit cards are not always the norm.
The SRA acknowledges that there is a reduction in the protection of the client's money if the client does not use a credit card to make payment.
It indicates, however, that if work was not completed, and the client was to seek repayment of their money, then there are other channels through which the client could have 'access to redress'. As a result, it concludes that there is sufficient balance between the administrative burden for solicitors and the level of protection offered to client money.
It would appear that if the proposed reduction in rules is implemented, there would also be the added bonus that the
SRA would see its own workload reduced. The consultation
refers to the fact that, for the period from June 2012 to December 2013, 50 per cent of approximately 9,000 firms that hold client money received a qualified accountants' report.
However, only 179 of these firms were investigated further. Sifting through approximately 4,500 reports to identify where the SRA's efforts should be focused does not sound like an overly appealing task, so any reduction in the number of reported firms would be most fortuitous.
As for us accountants,
we will await the end of the consultation and look forward
to what appears to be an exciting overhaul, not only of the rules but also of our procedures and work in respect of delivering services for the annual accountants' report.