SRA seeks to enhance risk identification

The Solicitors Regulation Authority (SRA) has initiated a consultation aimed at reforming notification requirements for law firms. This move is intended to strengthen the protection of client money while facilitating earlier identification of potential risks. By enhancing how firms communicate with the SRA, the regulator hopes to mitigate consumer harm and uphold public confidence in the legal services sector.

The proposed changes will require law firms to notify the SRA of specific events that may signal a higher risk of harm to clients. These prescribed notifications will include instances when firms begin holding or receiving client money as well as during mergers or acquisitions with other firms.

Aileen Armstrong, SRA Executive Director, Strategy and Policy, said: ‘Our focus is on gaining earlier visibility of potential risk. Having the right information at the right time is important to help us to proactively identify risks earlier and, if necessary, act on them to prevent harm, including the loss of client money. The proposed new notification requirements will help set the foundation for this.' She added, ‘We are initially targeting two areas where stakeholders agree there should be greater visibility of changes in real time: law firms acquiring other firms and firms starting to hold client money. We urge stakeholders to engage with us on our proposals for achieving this.’

This consultation follows recent announcements regarding new requirements for all firms handling client money to submit accountants’ reports to the SRA. Additionally, new rules have been introduced to ensure that individuals with significant decision-making power in firms cannot also serve as compliance officers for legal practices and finance.

High-profile cases like PM Law and Axiom Ince have underscored the urgency of identifying emerging patterns in mergers and acquisitions, as well as the necessity to closely monitor developments within firms that may pose risks.

The proposed reforms are part of a broader initiative aiming for a more intelligence-led model in risk identification. The SRA's draft 2026/27 business plan outlines the need to evaluate if the current framework for firms holding client money offers sufficient long-term protections. The plan also contemplates clearer accountability for senior individuals in firms regarding the safeguarding of client money and risk management.

The consultation is currently open and will continue until 17 August 2026, inviting stakeholders and the public to provide their insights on these significant proposals.