The SRA Accounts Rules are short on paper but heavy in operation. Every firm holding client money has to run a reconciliation discipline that holds at SRA inspection. The current version of the rules took effect on 25 November 2019 and has been amended several times since. The headline rules are short; the operational discipline is what matters.
This guide is the practical playbook. We cover what the rules actually require, where firms typically slip, the de minimis exemption that many small firms could claim, common breaches we see in practice, and what the COFA's role actually involves.
The headline rules in plain English
Rule 2 — Client money separation
Client money must be kept in a designated client account separate from office money. The client account must be with an institution the SRA approves (a UK clearing bank or building society). Different clients' money is pooled in the same client account but tracked through individual client matter ledgers — each client has its own ledger entry showing money in, money out, and current balance.
Rule 7 — Client money interest
Interest earned on client money belongs to the client when payment is "fair", with the test depending on amount and length of time held. Small amounts (under £20 of interest, typically) and short periods often don't require interest to be paid to the client; the firm retains it under its written client money policy. The policy must be in writing, accessible to clients, and applied consistently across the firm.
Rule 8.3 — Reconciliation frequency
Reconciliations of every client account and the office account must be performed at least every five weeks. This is the regulatory maximum interval — many firms operate to a monthly rhythm which gives a buffer against the five-week cap. The reconciliation must reconcile:
- The total of all client ledger balances against the bank statement balance of each client account
- Any differences must be identified and explained
- The reconciliation must be signed off by a named person (typically the COFA)
Rule 12 — Annual Accountant's Report
An annual SRA Accountant's Report is required within six months of the firm's accounting period end, unless a de minimis exemption applies. The report is prepared by an independent accountant who is qualified and approved by the SRA. The report must conclude either that the firm is compliant with the Accounts Rules, or identify specific failures.
Rule 12.2 — De minimis exemption
The exemption from the Annual Accountant's Report applies when both of the following are true throughout the accounting period:
- The firm held no more than £10,000 client money at any time during the period
- The average client money balance did not exceed £250
Both conditions must be met. Many small firms qualify but few realise — the assumption is often "we have client money therefore we need a report", missing that the threshold is per-period not per-firm. We routinely review eligibility for firms that have always assumed they need a report.
The five-weekly reconciliation rhythm in practice
The mechanics matter more than the headline rule. A reconciliation that just reconciles the bank balance to the ledger total doesn't catch matter-level issues. A good five-weekly cycle includes:
- Bank balance reconciliation: total of all client account bank statements vs total client ledger balances. Differences explained.
- Matter-level review: any matters with negative balances flagged immediately (a negative balance means firm money funded the client matter, a serious breach). Aged matter balances (over 6 months with no activity) flagged for review.
- Office account reconciliation: same exercise on the office account. Movements between client and office accounts checked against the matter ledger to ensure proper authorisation.
- Evidence file: bank statement, ledger extract, reconciliation working, exception report, signed off by the COFA. Filed by date in a structured way the SRA inspector can read.
Common breaches we see in practice
Most breaches are operational, not deliberate. The list below covers the recurring ones — fixing the process beats firefighting individual breaches.
Reconciliation interval exceeding 5 weeks
The bookkeeper goes on holiday. No one covers. The five-week cap quietly slides to six or seven. Breach. The fix is named-person backup arrangements and a recurring calendar event with a hard-stop date for each reconciliation.
Client money in office account longer than briefly
Settlement money lands in the office account because the client account details weren't supplied on the day, sits there over a weekend, then gets moved on Monday. If the holding period exceeds 14 days without specific reason, it's a breach. The fix is same-day or next-day movement and exception monitoring for any sums sitting in the wrong account.
Disbursement payments from client account before billing
Counsel fee paid from client account before the firm has billed the client for it. This is putting firm-side cost onto client money — a breach. The fix is bill-then-pay discipline and matter-level review of disbursement transactions.
Residual balances left to gather dust
Matter completed in 2018. £43 left on the matter ledger from an overpayment of conveyancing fees. Six years later, still sitting there. The SRA Accounts Rules require the firm to take reasonable steps to return the residual to the client; if untraceable, after defined attempts the residual can be transferred to a charity. The COFA's job is to surface these annually.
Client money interest policy that doesn't match practice
The policy on the website says "interest paid above £20". The firm actually retains all interest. Mismatched policy and practice is a clear breach. The fix is either rewriting the policy to match what you do, or changing the practice to match the policy.
COFA decision log absent or stale
SRA expects a COFA decision log documenting the materiality calls made on identified breaches. Empty or 18-month-stale logs suggest the function isn't operating. The fix is monthly review even if there's nothing to record (the COFA writing "no breaches identified this month, reconciliations completed within 5 weeks" is still good practice).
The Annual Accountant's Report in detail
Who can provide it
An independent accountant — independent of the firm being reported on, with relevant qualifications (typically ICAEW, ACCA, ICAS, CAI, AAT for some smaller firms), and approved by the SRA. Generalist accountants without specific legal-sector experience occasionally take on the work; the report quality varies.
The deadline
Six months from the firm's accounting period end. For a 31 March 2026 year-end, the report must be filed with the SRA by 30 September 2026. Late filing is a regulatory matter; repeated lateness escalates.
The working file
The accountant requests:
- Bank statements for all client and office accounts for the period
- Full client matter ledger extracts
- Reconciliation evidence file (the five-weekly cycle outputs)
- Breach decision log
- Client money interest policy and evidence of its application
- Any SRA correspondence during the period
- Sample of high-value client matters for ledger review
The review
The accountant samples client matters with attention to high-balance accounts, matters flagged by the COFA, and any matters showing unusual transaction patterns. The review is risk-based, not exhaustive — the SRA Accounts Rules don't require a 100% inspection.
The report
Two possible outcomes: "unqualified" (the firm is compliant with the Accounts Rules) or "qualified" (specific failures identified, with a description of each). The qualified report doesn't necessarily lead to SRA action — it depends on the materiality of the failures. The report is filed with the SRA; the firm retains a copy.
The COFA's actual role
The Compliance Officer for Finance and Administration is a named individual accountable to the SRA for the firm's compliance with the Accounts Rules. The role is real, not nominal — the SRA can take action against the named individual for failures.
What the COFA actually does
- Oversees the five-weekly reconciliation cycle (typically performed by the bookkeeper or accounts team, reviewed and signed off by the COFA)
- Maintains and applies the client money interest policy
- Maintains the breach decision log
- Makes the call on which breaches are material and notifiable to the SRA
- Co-ordinates the annual Accountant's Report
- Provides regular reports to firm management (typically monthly written update)
Who can be the COFA
Anyone in the firm who is "fit and proper" and has the authority to perform the role. Practice Manager, Finance Director, experienced bookkeeper, or an equity partner. The COFA does not have to be a solicitor (the COLP must be). For very small firms, the sole-practitioner solicitor often holds both COLP and COFA roles.
What the COFA is NOT
Not the bookkeeper (typically). The COFA oversees the function; the day-to-day bookkeeping is usually a separate role. Not a job for someone newly appointed without proper handover — many firms get this wrong by elevating a junior to COFA without training or transitional support.
New-COFA onboarding: a typical playbook
Most new COFAs inherit a function that has been quietly running for years. The challenge is understanding what "good" looks like in your specific firm and where the risks actually sit. We recommend a structured 90-day onboarding.
Days 1-30 — orientation
- Read the SRA Accounts Rules in full (yes, all of them — it's only 30-odd pages)
- Inherit the breach decision log and review the last 12 months of entries
- Review the last 6 months of reconciliation evidence files
- Meet the bookkeeper and walk through the reconciliation process
- Read the firm's client money interest policy and any related documentation
- Review the most recent Accountant's Report and any management letter
Days 31-60 — control assessment
- Identify any control gaps (reconciliation frequency, breach reporting, residual handling)
- Document recommended improvements with priority and timeline
- Build a personal monthly checklist of the recurring tasks
- Establish the regular management reporting rhythm
Days 61-90 — bedding in
- Implement the priority improvements
- First full monthly cycle complete with the new rhythm
- Quarterly check-in with the firm's accountant (if specialist)
- Begin building the relationship that will support the next Accountant's Report
SRA inspection: what to expect
The SRA conducts routine and risk-based visits. Routine visits are typically scheduled; risk-based visits can be unannounced. Either way the inspector will request:
- The breach decision log
- Reconciliation evidence files for a sample of months
- Client matter ledger extracts
- Recent client money interest applications
- The firm's client money interest policy
- Any SRA correspondence and the firm's response history
The faster and cleaner the response, the better the regulatory outcome. We help firms prepare for inspections proactively — getting the working file into a state where any reasonable request can be answered inside an hour.
What we'd do if you brought us in
Our SRA Accounts Rules engagement covers:
- Annual Accountant's Report delivered 4-6 weeks ahead of the SRA deadline
- Quarterly review of the reconciliation evidence file and breach log
- COFA support including the materiality-call sounding board for grey-area breaches
- De minimis exemption review (often saves smaller firms a report fee they didn't need to pay)
- Client money interest policy review and application audit
- New-COFA onboarding as a separate engagement when needed
If you're approaching your year-end and your accountant isn't legal-sector specialist, the conversation is worth having. Book a 30-minute scoping call below.