Common SRA Accounts Rules Breaches and How Solicitors Can Fix Them

Why these breaches keep happening

The SRA Accounts Rules 2019 came into force on 25 November 2019. They are short, principles-based rules, which is exactly why firms get caught out: the obligations are broad, the COFA carries primary responsibility, and a single weak control can produce a breach that sits undetected until a reconciliation, an accountant's report or an SRA visit surfaces it.

Most breaches are not dishonesty. They are process failures: a reconciliation that slipped past five weeks, a transfer made before the bill went out, a small balance left on a closed file. This guide works through the breaches we see most often, mapped to the specific rule each one offends, with the remediation steps and the point at which you need to report. It is written for COFAs, partners and sole practitioners who want to fix the cause, not just the symptom.

For tailored support, speak to a solicitor accountant who works with SRA-regulated firms. For the formal reporting process, see our companion guide on SRA breach notification: when and how to report.

The breach taxonomy: what goes wrong and how to fix it

1. Late or missing five-weekly reconciliations (Rule 8.3)

Rule 8.3 requires you to reconcile the client account at least every five weeks. The reconciliation must agree three figures: the total of the individual client ledger balances, the cash book balance, and the bank statement balance. The COFA or a manager must sign it off. Running it late, or running it but leaving an unexplained difference, both breach the rule.

What goes wrong in practice:

• The reconciliation slips past the five-week window because the person responsible is on leave or overloaded.
• The three-way agreement is not actually made: the bank is reconciled to the cash book, but individual client ledgers are never totalled and tied back.
• Unpresented payments, uncleared receipts or stale entries are carried as a "difference" rather than investigated.
• The sign-off is a formality, with no evidence the COFA reviewed it.

Example: a high street firm with around 50 active matters let its reconciliation slip to eight weeks while its bookkeeper was away. When it was finally run, the client ledger total and the bank balance differed by several thousand pounds, traced to a double-posted conveyancing receipt. The difference was innocent, but the late, unreviewed reconciliation was itself the breach.

How to fix it: set a fixed reconciliation date each cycle, well inside five weeks, and a named deputy for cover. Reconcile all three figures, not two. Investigate and clear every difference rather than carrying it. Keep evidence of the COFA review, not just a signature. Run an exception report for debit balances on client ledgers (a client ledger should never go into debit, see breach 3).

2. Mixing client and office money (Rule 4)

Rule 4 requires client money to be kept separate from the firm's own money. The two most common ways firms breach it: paying client money into the office account (or the wrong way round), and paying an office expense out of the client account. Even a brief mix, intended to be reversed, is a breach.

It usually happens under cash-flow pressure, when a firm treats the client account as a buffer, or through simple miscoding when a mixed payment (part fees, part disbursements held) is banked to the wrong account.

Example: a sole practitioner paid quarterly office rent from the client account intending to repay it the next day. The repayment slipped by three weeks, leaving a shortfall on client money during that time. The firm had to make good the shortfall immediately and treat it as a reportable breach because client money had been at risk.

How to fix it: never use the client account as working capital. If you need short-term funding, use an office overdraft or partner capital, not client money. Split mixed receipts correctly at the point of banking. Where money is part client and part office, follow your Rule 4 procedure for handling and prompt allocation. Replace any shortfall from the office account the moment it is found.

3. Improper or unauthorised withdrawals (Rules 4 and 5)

You may only withdraw client money for the purpose for which it is held and on behalf of the client it belongs to, and only up to the funds held for that client. Two breaches recur: taking money to office before you are entitled to it, and overdrawing a client ledger so one client's money funds another's transaction.

• Transferring to office before billing or authority. You may move costs to office once you have delivered a bill or other written notification of costs, or where you have the client's authority. Moving it earlier is a breach.
• Overdrawn client ledgers. If a payment exceeds the balance held for that client, the ledger goes into debit and you have used other clients' money. This is one of the most serious breaches because it is a direct shortfall.

Example: a firm transferred a sum from client to office to cover a disbursement before the client had approved it and before any bill was raised. The transfer had to be reversed, the ledger restored, and the cause (a fee-earner moving money without checking the bill status) addressed through process change.

How to fix it: require a delivered bill or written authority before any client-to-office transfer, and build that check into your accounting workflow. Block payments that would overdraw a client ledger at source in your practice management system. Make overdrawn-ledger detection part of the five-weekly reconciliation and correct any debit balance immediately by transferring office money in to clear it.

4. Using the client account as a banking facility (Rule 3.3)

Rule 3.3 prohibits using a client account to provide banking facilities to clients or third parties. Every payment into, and every transfer or withdrawal from, the client account must be in respect of the delivery of regulated services. Passing money through the client account that has no connection to legal work you are doing, even at a client's request, breaches the rule. The SRA treats this as a high-risk area because it can facilitate money laundering, and it has imposed significant penalties for it.

Typical patterns: holding or moving funds for a client where the underlying transaction has settled or fallen through, making payments to third parties unconnected to any retained matter, or letting the client account act as a place to "park" money.

Example: a firm held a substantial sum for a client after the related transaction had collapsed, then made onward payments to third parties on the client's instruction with no live legal matter underpinning them. With no regulated service attached, the movements breached Rule 3.3.

How to fix it: for every receipt and payment, be able to point to the regulated service it relates to. If there is no live matter, do not take or move the money. Return funds promptly once the matter concludes (see breach 5). Train fee-earners that "the client asked us to" is not a defence; the test is whether the movement relates to legal services you are delivering.

5. Residual balances and failure to return client money promptly (Rule 2.5)

Rule 2.5 requires client money to be returned promptly to the client, or the third party it is held for, as soon as there is no longer any proper reason to hold it. Small residual balances left on completed or dormant matters are an extremely common breach, individually trivial but collectively a sign of weak file-closing discipline. Holding money with no proper reason can also tip into a Rule 3.3 banking-facility breach.

How it builds up: a few pounds of interest or an overpaid disbursement is left when a file is archived, the client cannot be traced, or no one owns the task of clearing balances at closure.

Example: a firm's reconciliation surfaced dozens of small balances on matters closed years earlier, several where the client could not be located. Each had been left rather than returned, so the firm was holding client money with no proper reason across many ledgers.

How to fix it: make returning the balance part of closing every file, with the ledger required to be nil before archiving. Run a periodic residual-balance report and clear the list. Document genuine attempts to trace clients. Where small balances cannot be returned despite reasonable efforts, follow the SRA's withdrawal route for residual client balances and keep the evidence. Prevention beats clean-up: a nil-balance-to-close rule stops the backlog forming.

6. Failing to account for interest (Rule 7)

Rule 7 requires you to account to the client or third party for a fair sum of interest on client money you hold on their behalf. Fairness is judged by the amount held and how long it is held; a contrary written agreement with the client is permitted, but a policy that is simply too restrictive does not meet the fairness test. Conveyancing firms holding large completion monies for weeks are the classic exposure.

Where firms slip: a blanket de minimis that never pays interest below a high threshold, no calculation at all, or a written policy that exists but is not applied consistently.

Example: a firm held a large sum for a buyer for several weeks under a policy that only paid interest on balances above a high floor held beyond 30 days. On review the policy was found too restrictive to be fair, so interest should have been accounted for; the firm had to pay the shortfall.

How to fix it: set a written interest policy that reflects a genuine fairness assessment by amount and duration, not an arbitrary floor designed to avoid paying. Apply it consistently and review it at least annually as base rates move. A client account reserve calculator can help you sense-check what a fair sum looks like on the balances you typically hold.

7. Failing to obtain, or filing a late, accountant's report (Rule 12)

If you have held client money during an accounting period, Rule 12 requires you to obtain an accountant's report within six months of the period end, and to deliver it to the SRA within the same window if it is qualified. Two breaches recur: not getting a report when you needed one because you wrongly assumed you were exempt, and getting it late.

The exemption is the trap. A firm is exempt from the report requirement under Rule 12 if either:

• all the client money it held or received in the period was money from the Legal Aid Agency; or
• its client money balances did not exceed an average of £10,000 and a maximum of £250,000 during the period (the foreign-currency equivalent counts toward the maximum).

The exemption turns on client money held, not on turnover or fee income. A low-fee firm can still need a report if a single completion pushes the maximum above £250,000, or if the average across the period exceeds £10,000.

Example: a sole practitioner conveyancer handled several completions in a period and held client balances well above £250,000 at peak, but assumed the firm was exempt because its fee income was modest. It had read the test as turnover rather than client money held, missed the report, and the gap surfaced on an SRA check.

How to fix it: test both limbs of the exemption against your actual client money records every period, not your turnover. If either limb is exceeded, or any of the money is non-LAA, commission a report from a specialist SRA Accounts Rules accountant in good time before the six-month deadline. Where a report is qualified, deliver it to the SRA promptly.

Remediation: the four steps for any breach

Whatever the breach, the response follows the same shape. Working through it in order protects client money first and gives you a defensible record.

Step 1: Investigate and quantify

Establish the facts fast: which rule is engaged, the sum involved, whether client money is in shortfall, how it happened and over what period. Document your findings as you go. A breach where client money is actually short is more serious than a record-keeping slip with no shortfall, and that distinction drives everything that follows.

Step 2: Make client money good

If there is a shortfall, replace it from the office account promptly so client money is restored. Correct the affected client ledgers, reverse any improper transfer, and pay any interest due. Restoring the position is not optional and does not wait for the reporting decision.

Step 3: Record, then decide whether to report

Every Accounts Rules breach goes on the COFA's central breach record, material or not. Then assess seriousness: the amount, the risk to client money, whether it is a one-off or systemic, and how promptly it was fixed. A serious or material breach must be reported to the SRA promptly. There is no fixed seven-day rule; if in doubt, the safer course is to report. The detailed test, the materiality factors and how to file are in our guide to SRA breach notification: when and how to report.

Step 4: Fix the cause

Close the loop by changing the process that allowed the breach: a control in the practice management system, a workflow check, retraining, or reallocating the COFA's time. A breach that is corrected but whose cause is left in place will recur, and a repeated breach is treated far more seriously than an isolated one.

Preventing breaches before they start

Resource and empower the COFA

The COFA carries primary responsibility for Accounts Rules compliance, but many firms under-resource the role. Give the COFA the authority, the time and the system access to perform the five-weekly reconciliation, review exception reports, and maintain the breach record. A COFA in name only is a structural weakness.

Build the rules into the system, not just the policy

The most reliable controls are the ones a person cannot bypass: blocking payments that would overdraw a client ledger, requiring a delivered bill before a client-to-office transfer, flagging dormant balances, and prompting interest calculations on large holdings. Practice management software that enforces these removes the most common human-error breaches at source.

Audit before the SRA does

Run an internal client account audit each quarter: reconciliations, ledger balances, transfer authorities, interest, and residual balances. Use a checklist mapped to the rules, fix anything you find, and document the corrective action. An external review periodically, for example through a COFA compliance support service, gives an independent check on the controls you rely on.

In summary

The common SRA Accounts Rules breaches cluster around a handful of failures: late or incomplete five-weekly reconciliations, mixing client and office money, improper or overdrawn withdrawals, banking-facility misuse, residual balances, unpaid interest, and missed or late accountant's reports. Each maps to a specific rule, and each has a clear remediation path: investigate, make client money good, record and decide on reporting, then fix the cause.

Get the exemption test right (LAA-only money, or an average not exceeding £10,000 and a maximum not exceeding £250,000), resource your COFA properly, and build the rules into your systems rather than relying on memory. For the reporting mechanics once a breach is found, read our guide on SRA breach notification. For hands-on help designing client account controls that hold up to scrutiny, speak to a solicitor accountant who understands the SRA Accounts Rules.