By Legal Futures Associate ILFM
The Solicitors Regulation Authority (SRA) Accounts Rules – if you are a solicitor, does the phrase strike terror through your heart? Or are you confident you are up to speed with them? It goes without saying that fee-earners (whether large multinationals or sole practitioners), along with everyone working in a law firm, must comply with the rules, which set out requirements for dealing with money belonging to clients.
Failure to comply can result in severe penalties including fines, sanctions and even being struck off.
The SRA made major revisions to the Accounts Rules in 2019, reducing the main rules down to 13 and since have been considering implementing some minor updates in order to clarify some of these rules. In December 2023 they decided to conduct a wider review of consumer protection arrangements – the outcome of which is yet to be announced
Here, we provide a general overview of some of the key rules for firms to be aware of and to help protect against some of the risks of breaching these rules.
We will be running a more in-depth training session on these issues in September for those wanting to learn more. We will of course provide an update on the wider-reaching review as and when the details are released.
Handling client money
“Client money” refers to any money that you hold or receive in connection with the regulated legal services you provide.
You must pay client money into a client account promptly unless:
- Doing so would conflict with other legal obligations you have.
- The money is from the Legal Aid Agency for your costs.
- You’ve agreed in writing with the client or third party on a different arrangement.
Client money should be available on demand unless you’ve agreed otherwise in writing. You also need to return the money promptly as soon as you no longer have a proper reason to hold it.
Billing and disbursements
Disbursements refer to payments made to a third party on behalf of clients, such as court fees and counsel fees,
Client money includes money held for unpaid disbursements if this money is received before the delivery of a bill. Once a bill is issued, the money is no longer classified as client money and can be transferred from the client account to the firm’s office account.
When a firm holds client money intended for fees or disbursements, they must issue a bill or other written notification before transferring the money from the client account to the firm’s business account
After delivering a bill or written notification of costs to the client, the solicitor may transfer the corresponding amount from the client account to the business account. This should be done promptly and in accordance with the amount specified in the bill.
Money received for disbursements is treated as client money until it has been paid.
Firms must keep clear and accurate records of all transactions related to client money, including the receipt, handling, and transfer of funds for disbursements and billed services.
Clients should be notified of any significant expenses or disbursements in advance, and all costs should be transparent, ensuring there are no surprises when they receive their bill.
Third-party managed accounts (TPMA)
A TPMA is a special account managed by someone outside your law firm, typically a bank or financial company. It holds your client’s money and manages it for you (essentially an outsourced client account).
The client needs to understand and agree to the arrangement. Your client must understand how the account works, including any fees and who will pay them as well as their right to cancel the agreement or dispute any payment requests you make.
Even though a third party manages the money, you are still responsible for having suitable arrangements in place for the use and monitoring of such accounts, in accordance with the SRA’s regulatory arrangements.
You should also get regular statements from the account provider to ensure all transactions are correct.
Find out more
The ILFM is holding an online training session on SRA Accounts Rules designed specifically for fee-earners. The session takes place on Tuesday 3 September. Click here to sign up: https://www.eventbrite.co.uk/e/new-sra-accounts-rules-for-fee-earners-up-to-3-hours-tickets-955552231447?aff=ebdsoporgprofile
The Institute of Legal Finance & Management is the leading education and membership organisation in the legal sector, providing compliance, legal finance and practice management training and knowledge. Visit our website to learn more: https://www.ilfm.org.uk/site/training-and-events/
