What Are the SRA Accounts Rules and How Do They Affect UK Solicitors?

Introduction to the SRA Accounts Rules

The SRA Accounts Rules are the regulatory framework that governs how solicitors in England and Wales handle client money. They are set by the Solicitors Regulation Authority (SRA) and apply to every SRA-regulated law firm, from sole practitioners to large multi-partner LLPs. The current version, the SRA Accounts Rules 2019, came into force on 25 November 2019, replacing the 2011 rules, and has been amended since.

This article is the broad overview. If you are a solicitor, a COFA, or a partner in a law firm, it explains what the rules cover and how they affect day-to-day practice: the client account, the ban on using it as a bank, reconciliations, interest, and the accountant's report. Non-compliance can lead to SRA intervention, fines, or even closure of a practice, so the rules reward a clear understanding rather than guesswork. Where a topic has its own detailed page (such as the accountant's report exemption), we point you to it rather than repeat the full working here.

For hands-on help applying these rules, see our SRA Accounts Rules compliance service.

Core Principles of the SRA Accounts Rules 2019

The 2019 rules are deliberately shorter and more principles-based than their predecessors. They are built around a simple idea: client money is not your money, and it must be kept safe and kept separate. Everything else (the account, the reconciliations, the report) exists to protect that principle.

What Counts as Client Money

Rule 2.1 defines client money. In broad terms it is money you hold or receive that relates to regulated services delivered to a client, money held on behalf of a third party, money held as a trustee or in another fiduciary capacity, and money held in respect of your fees and any unpaid disbursements before you have delivered a bill. If money falls within that definition, the rest of the rules apply to it.

Knowing what is and is not client money matters, because the safeguards below attach to client money specifically. Mislabelling office money as client money, or the reverse, is where many breaches begin.

The Separate Client Account

Rule 3 requires client money to be held in a separate client account at a bank or building society in England and Wales. The account must be in the firm's name and include the word "client" in its title, and it must be kept distinct from the firm's own money. The point of the separate account is that client funds never sit alongside, and are never exposed to, the firm's own business risk.

There are limits on what can pass through the account. You pay in client money; you do not pay in the firm's own money, except a small sum to open or maintain the account, or to correct an error. When you withdraw client money you must have a proper reason for doing so, such as paying a disbursement on the client's behalf or transferring funds to the office account after you have billed.

No Banking Facilities (Rule 3.3)

Rule 3.3 contains one of the most frequently misunderstood duties. You must not use a client account to provide banking facilities to clients or third parties. Every payment into, and every transfer or withdrawal out of, a client account must be in respect of the delivery by your firm of regulated services. In practice this means you cannot route money through the client account simply because a client finds it convenient. If the movement of money is not tied to legal work you are actually doing, it does not belong in the client account, and the SRA treats this as a serious matter.

Returning Client Money Promptly (Rule 2.5)

Rule 2.5 requires you to return client money 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. Residual balances left sitting in the client account long after a matter has closed are a common and avoidable breach. A periodic sweep of dormant balances should be part of every firm's routine.

Accounting for Interest (Rule 7)

Under Rule 7 you must account to clients, or the relevant third party, for a fair sum of interest on client money you hold on their behalf. The test is one of fairness, judged by the amount held and how long it was held, rather than a mechanical pass-through of every penny of bank interest. A firm may set out a reasonable interest policy and record it in its terms of business, provided the outcome is fair. Many firms apply a sensible de minimis approach for very small sums held for very short periods, documented in the client care letter.

Reconciliation At Least Every Five Weeks (Rule 8.3)

Rule 8.3 requires a reconciliation of the client account at least every five weeks. The reconciliation must bring together the bank or building society statement balance, the cash book balance, and the client ledger total, and the record of it must be signed off by the COFA or a manager of the firm. Reconciling monthly is fine, as long as the interval never slips past five weeks. If you operate more than one client account, each must be reconciled. Late or missing reconciliations are among the breaches the SRA reports most often, and they are usually the first thing an inspector checks.

The SRA Accountant's Report: Who Needs One and When

The accountant's report is a formal document, prepared by a qualified accountant, confirming whether your firm has complied with the SRA Accounts Rules during the accounting period. The obligation sits in Rule 12.1: a firm that has held or received client money during the period must obtain an accountant's report within six months of the end of that period (and deliver it to the SRA within six months if it is qualified).

The Exemption (Rule 12.2)

Not every firm needs a report. Under Rule 12.2 your firm is exempt if either of the following applies:

• all the client money you held or received during the period was money held only on behalf of the Legal Aid Agency; or
• the statement or passbook balance of the client money you held or received did not exceed an average of £10,000 and a maximum of £250,000 during the accounting period.

Both limbs of the balance test must be satisfied. If your average client money balance goes over £10,000, or your peak balance goes over £250,000 at any point, the exemption is lost and a report is required. Even where you are exempt, you must keep records that demonstrate you meet the criteria, because the SRA can ask to see them.

This is the single point on which firms most often get the numbers wrong, so it is worth stating plainly: the £10,000 figure is the average limit and the £250,000 figure is the maximum. For worked examples of how the average and the peak are measured across an accounting period, and the practical traps in applying the test, see our dedicated guide to the SRA accountant's report exemption thresholds.

What the Accountant Checks

The reporting accountant reviews your client account records: ledgers, bank statements, reconciliations and transfer records. They check that client money was held separately, that withdrawals had a proper purpose, that reconciliations were carried out within the five-week interval, and that the firm's systems and records are adequate. If they identify a breach, they must record it. Material breaches may lead the SRA to require a qualified report or to take further action.

For support preparing for a report, see our SRA Accounts Rules compliance service.

COFA Responsibilities Under the SRA Accounts Rules

The COFA (Compliance Officer for Finance and Administration) is the person who carries primary responsibility for the firm's compliance with the SRA Accounts Rules. Every SRA-regulated firm must appoint a COFA, who must be a manager or employee of the firm. The role sits alongside the COLP (Compliance Officer for Legal Practice), and the underlying duties are framed in the SRA's authorisation rules.

In practice the COFA makes sure the firm's financial systems are robust, that client money is safeguarded, that reconciliations are completed and signed off on time, and that any accountant's report is obtained when required. The COFA must also report serious breaches to the SRA promptly. A COFA should hold a working knowledge of the 2019 rules and maintain a compliance file (reconciliations, transfer records, client account statements) that can be produced on request.

Common Breaches and How to Avoid Them

The breaches the SRA reports most frequently are rarely exotic. They are everyday lapses that a tidy system prevents.

Late or Missing Reconciliations

This is the most common breach. To stay inside the Rule 8.3 limit, set an internal reminder shorter than five weeks to give yourself a buffer, and give one named person responsibility for each reconciliation. A sole practitioner should fix a regular day each month and treat it as non-negotiable.

Mixing Client and Office Money

Never pay office money into the client account, and never use the client account to settle the firm's own costs. If client money lands in the office account in error, move it back at once and record the correction. Keeping the two streams strictly separate is the heart of the rules.

Using the Client Account as a Bank

Routing funds through the client account for a client's convenience, with no link to legal work you are doing, breaches Rule 3.3. If you cannot point to the regulated service the payment relates to, it should not pass through the client account.

Residual Balances Left Unreturned

Small balances left on closed matters breach the Rule 2.5 duty to return client money promptly. Build a periodic review of dormant balances into your routine so funds are returned, or properly dealt with, without delay.

Inadequate Records

Keep all client account records for at least six years. This includes ledgers, bank statements, reconciliations and transfer instructions. The SRA can ask for records from earlier years, and a complete file is the simplest way to demonstrate compliance.

A Practical Compliance Checklist

Pulling the rules together, here is an overview checklist for staying compliant with the SRA Accounts Rules 2019.

• Hold client money in a separate, correctly named client account at all times (Rule 3).
• Never use the client account to provide banking facilities (Rule 3.3).
• Reconcile every client account at least every five weeks, signed off by the COFA or a manager (Rule 8.3).
• Return client money promptly once there is no proper reason to hold it (Rule 2.5).
• Account to clients for a fair sum of interest and document your interest policy (Rule 7).
• Obtain an accountant's report within six months of the period end, unless you qualify for the Rule 12.2 exemption (average £10,000 and maximum £250,000, or Legal Aid Agency money only).
• Keep a complete compliance file and retain records for at least six years.
• Train every fee-earner on the client account rules and review compliance regularly with a legal-sector accountant.

If you need help with any of these steps, our SRA Accounts Rules compliance service can assist.

Conclusion

The SRA Accounts Rules 2019 are not optional. They are a regulatory requirement that protects client money and underpins trust in the legal profession. Every solicitor and firm should understand the separate client account, the Rule 3.3 banking prohibition, the five-weekly reconciliation, the duty to account for interest, and the accountant's report obligation.

If you are a COFA or a partner, treat compliance as routine rather than a year-end scramble. Regular reviews with a legal-sector-specialist accountant catch issues before they become breaches. For a review of your firm's compliance, or help preparing for an accountant's report, contact us for a confidential discussion.