Solicitors Regulation Authority Accounts Rules one year on

Kate Arnott, head of professional services, partner at MHA MacIntyre Hudson, says after an initial round of hesitancy to change, many firms have now looked for opportunities within the new rules to simplify or streamline processes.

When the new Solicitors Regulation Authority (SRA) Accounts Rules became effective on 25 November 2019, we had no idea a 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 while dealing with the challenges of Covid-19.

Initially, most firms didn’t make any significant changes as the guidance stipulated that if your systems and processes were compliant with the old rules then 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.

But, 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 it recognises that these are exceptional circumstances and would take a proportionate approach to enforcement, it still expects 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 five 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.

Our free webinar: The SRA – one year on, is taking place on 20 January 2021, covering all of the new guidance that has been issued and how firms have adapted to the new rules. We also have a guest speaker from the world of professional indemnity insurance who will provide an insight on what factors influence premiums.  Please visit www.macintyrehudson.co.uk/events to find out more and book your place.