By Legal Futures’ Associate The Cashroom [1]
Earlier this year, the Solicitors Regulation Authority (SRA) released the changes to their Accounts Rules which will come into force from November 25th, 2019.
The SRA’s new Standards and Regulations will replace their current Handbook. They have been promoted as offering a less prescriptive set of regulations offering solicitors greater freedoms in interpreting the standards and how they should be enforced.
In April, the SRA’s Residential Conveyancing and Thematic Review was highly critical of the discrepancy between an initial quote and final conveyancing transaction costs.
Over a third (34%) of observed quotes failed to include costs and fees that should have been anticipated by the solicitor and ultimately added to the original quote.
The report found that additional fees were charged for administering gifted deposits, processing bank transfers and even for electronic ID verification. It was claimed that many of these fees were foreseeable, integral and a compulsory part of the conveyancing/home buying process.
Although firms may only quote for the actual conveyancing service and legal fees, when home buyers are already stretched, the SRA argued that fees like this should have been clearly referenced and included in the initial quote.
The new standards and regulations reflect this issue and ensure the client is fully informed before financial decisions, affecting them, are made by the firm.
Although the Accounts Rules have decreased from 52 rules to 13 considerations, SRA regulated firms need to remain up to date regarding their obligations following the significant changes that will take effect this winter.
Important Changes to the Rules
Providing a Bill of Costs Before Transferring Money
Currently, law firms may transfer money for disbursements they are owed from fees and searches in order to reimburse a firm for the loss they have incurred.
However, 4.3 of the Accounts Rules will prohibit a law firm from making a client account withdrawal without first notifying a client. The rule states:
4.3 Where you are holding client money and some or all of that money will be used to pay your costs:
- you must give a bill of costs, or other written notification of the costs incurred, to the client or the paying party;
- this must be done before you transfer any client money from a client account to make the payment; and
- any such payment must be for the specific sum identified in the bill of costs, or other written notification of the costs incurred,
Solicitors will now need to provide a clear bill of all costs, including any disbursements which will be included as costs during this process. Law firms will need to be organised and transparent with the fees and disbursements they may charge to avoid conflict.
Law firms will also need to ensure they have a specific figure in order to comply with Section C. It will therefore become essential for law firms to become a lot more specific about the costs, fees and disbursements which could affect the overall total.
Records, Audit Trails and Regularly Updated Balance Statements
Accounts Rules 8.1 – 8.4 highlight the responsibility of a law firm to keep accurate and constantly up to date records of the finances held in a client account.
The real obstacle for law firms here involves the obvious time implications that such a burdensome, labour intensive process will create. The rules involve meticulous organisation and consistent updating of client account information.
8.1 (a) asserts that all records must be accurate, relevant to the present time period and placed in chronological sequence. All receipts and payments need to be clearly displayed; a list of balances, including liabilities, shown by client ledger accounts and a cash book needs to be regularly used to show a running total of all transactions operated by the law firm.
A client account must have access and provide statements from the financial institution every five weeks. As part of this process the law firm will also need to reconcile the bank statement with the cash book of transactions every five weeks.
There is also a requirement to maintain and keep a readily accessible trail of all bills, costs and written notifications made by the law firm.
These tasks are administration heavy, time consuming and could delay a legal service practitioner from completing the tasks they are seeking to carry out for their clients.
Fortunately, rules 11.1 and 11.2 state that firms may enter into arrangements with a client to use a third party managed account (TPMA) as long as the client understands the terms of the arrangement, the process allows a client to terminate the TPMA and the firm is able to obtain regular statements in order to comply with other accounts rules.
Easing the Administrative Burden
Outsourcing legal cashiering services to The Cashroom will enable your firm to remain SRA compliant without spending hours of time fretting over the new rules and whether your actions are compliant. We are experts in the legal sector and understand a law firm’s adapting needs.
Allow The Cashroom to help your firm:
- Maximise your resource: Benefit from a cost based on the actual activity and skill level your firm requires, rather than having to fund sufficient senior cashiering resource to deal with complex, high-risk elements, while using that same resource to carry out the more mundane, junior tasks.
- Access expertise and insights: Get access to better forecasting data which provides valuable business insights that can be used to identify trends and inform your overall business strategy.
- Get the best out of your system: The Cashroom supports any case management system, and has years of experience of utilising a huge variety of systems, enabling us to bring best practice processes to your firm.
- Improve your cashflow: Ensure an up-to-date log of case-related fees and expenses for regular claim back purposes – resulting in a healthier cash flow.
- Reduce your exposure to risk: The Cashroom has invested heavily in security measures and will enable compliance.
- Improve efficiency and productivity: Free your employees to get on with what they do best and benefit from more streamlined processes.
- Become more agile: Scale resource up and down as you need it, without the hassle of hiring and firing employees.
Here at The Cashroom, our team of qualified and experienced legal cashiers can be on hand to unburden busy conveyancing departments of their payroll duties [2], improving efficiency and ensuring that all law firms remain compliant with SRA Account Rule changes [3].
Contact Alex Holt for information about our services on alex.holt@thecashroom.co.uk [4] or enquire through the website at www.thecashroom.co.uk [5]