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 came into effect on 25 November 2019, replacing the 2011 rules, and has been amended since.

If you are a solicitor, a COFA, or a partner in a law firm, you need to understand these rules thoroughly. Non-compliance can lead to SRA intervention, fines, or even closure of your practice. This article explains the key requirements of the SRA Accounts Rules 2019, focusing on client account rules, reconciliation intervals, the accountants report, and common compliance issues.

For a deeper look at the practical steps, see our SRA Accounts Rules Essentials guide.

Core Requirements of the SRA Accounts Rules 2019

The rules are built around a few fundamental principles. The most important is that client money must be kept separate from the firm's own money at all times. This is the bedrock of the client account rules.

Client Account Rules: Separation and Safeguarding

Rule 2.1 of the SRA Accounts Rules 2019 states that client money must be held in a separate client bank account. This account cannot be used for the firm's own business transactions. The account must be designated as a client account, and the bank must be notified of its status. The firm must also ensure that client money is held on trust for the client, meaning the firm has no beneficial interest in those funds.

There are specific rules about what can and cannot be paid into a client account. For example, you can pay in client money, money held as a stakeholder, and money held for a client as a trustee. But you cannot pay in the firm's own money, except for a small sum to open the account or to correct a minor error.

When you withdraw client money, you must have the client's authorisation (usually in the form of a signed bill or written instruction). The withdrawal must be for a proper purpose, such as paying a disbursement or transferring to the firm's office account after billing.

Five-Weekly Reconciliation Requirement

Rule 8.3 of the SRA Accounts Rules 2019 requires that you reconcile your client account at least every five weeks. This means comparing your client ledger balances with the bank statement balance. The reconciliation must be signed off by a principal of the firm (or someone authorised by them).

Many firms reconcile monthly, which is fine as long as the interval never exceeds five weeks. The reconciliation must cover all client accounts, including any designated deposit accounts. If you have multiple client accounts, each one must be reconciled separately.

Failure to reconcile within the five-week window is a common breach reported in SRA annual reports. It is often the first thing an SRA inspector checks during a compliance visit.

Client Money Interest: The Fairness Test

Under Rule 7.1, you must account to clients for interest earned on their money held in your client account. However, the rule applies a "fairness test". You only need to pay interest if it is fair to do so, considering the amount held and the length of time it was held. For small amounts held for short periods, you can retain the interest as part of your firm's policy.

Many firms set a de minimis threshold, such as not paying interest on amounts under £500 held for less than 30 days. This must be documented in your firm's client care letters or terms of business. If you do retain interest, you must still account for it properly in your books.

The SRA Accountants Report: Who Needs One and When

The accountants report is a formal document submitted to the SRA by a qualified accountant, confirming that your firm has complied with the SRA Accounts Rules during the reporting period. It is required under Rule 12.1 of the SRA Accounts Rules 2019.

When Is an Accountants Report Required?

You must submit an accountants report if your firm held client money during the reporting period. The reporting period is typically the firm's accounting year. The report must be submitted within six months of the end of the accounting period.

There is an exemption under Rule 12.2. You do not need an accountants report if your firm held no more than £10,000 of client money at any time during the period AND the average client money balance did not exceed £250. This exemption is common for firms that do no conveyancing or litigation work. But if you hold any client money at all, you must check the thresholds carefully.

Even if exempt, you must still keep records to demonstrate that you meet the exemption criteria. The SRA can request evidence at any time.

What the Accountant Checks

The accountant will review your client account records, including ledgers, bank statements, reconciliations, and transfer records. They will check that client money was held separately, that withdrawals were properly authorised, and that reconciliations were done on time. They will also check that the firm's accounting systems are adequate.

If the accountant finds any breaches, they must report them in the accountants report. Material breaches may lead to the SRA requiring a qualified report or taking regulatory action.

For support with preparing for an accountants 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 responsible for ensuring the firm complies with the SRA Accounts Rules. Every SRA-regulated firm must have a COFA, who must be a manager or employee of the firm. The COFA's duties are set out in the SRA Authorisation Rules.

The COFA must ensure that the firm's financial systems are robust, that client money is properly safeguarded, and that all required reports (including the accountants report) are filed on time. The COFA must also report any serious breaches to the SRA promptly.

If you are a COFA, you should have a thorough understanding of the SRA Accounts Rules 2019. You should also maintain a compliance file with all reconciliations, transfer records, and client account statements. The SRA can request this file at any time.

For more on the COFA role, read our COFA Fundamentals guide.

Common Breaches and How to Avoid Them

The SRA publishes annual reports on the most common breaches of the Accounts Rules. Here are the top issues and how to avoid them.

Late or Missing Reconciliations

This is the most common breach. To avoid it, set a calendar reminder for every four weeks (not five, to give a buffer). Designate one person to be responsible for each reconciliation. If you are a sole practitioner, do the reconciliation yourself on a fixed day each month.

Mixing Client and Office Money

Never pay office money into the client account. If you need to correct a small error, use a separate transfer from the office account. If you accidentally pay client money into the office account, transfer it immediately and record the correction.

Failure to Pay Interest

Document your firm's interest policy clearly. If you retain interest on small amounts, ensure your client care letters explain this. Review the policy annually to ensure it remains fair.

Inadequate Records

Keep all client account records for at least six years after the matter is closed. This includes ledgers, bank statements, reconciliations, and transfer instructions. The SRA can request records from previous years.

Practical Steps for Compliance

Here is a checklist for staying compliant with the SRA Accounts Rules 2019.

  • Maintain a separate client bank account at all times.
  • Reconcile the client account at least every five weeks.
  • Keep a compliance file with all reconciliations and transfer records.
  • Submit the accountants report within six months of the year-end (if required).
  • Document your client money interest policy.
  • Train all fee-earners on the client account rules.
  • Review your SRA Accounts Rules compliance annually with your accountant.

If you need help with any of these steps, our COFA compliance support service can assist.

Conclusion

The SRA Accounts Rules 2019 are not optional. They are a regulatory requirement that protects client money and maintains trust in the legal profession. Every solicitor and law firm must understand the client account rules, the five-weekly reconciliation requirement, and the accountants report obligations.

If you are a COFA or a partner, make compliance a priority. Regular reviews with a legal-sector-specialist accountant can catch issues before they become breaches. The cost of non-compliance far outweighs the effort of getting it right.

For a full review of your firm's compliance with the SRA Accounts Rules, speak to a specialist solicitor accountant. We can help you prepare for your accountants report, set up robust systems, and avoid common pitfalls. Contact us for a confidential discussion.