SRA: Review of consumer protection arrangements
The Solicitors Regulation Authority (SRA) has postponed changes it was set to make to the accounts rules – including how money taken for costs in advance of work being done is dealt with – in light of the Axiom Ince scandal.
It withdrew part of its application to the Legal Services Board (LSB) for approval of minor amendments to the Standards & Regulations, following a consultation issued a year ago.
In a letter to the LSB, Aileen Armstrong, the SRA’s executive director for strategy, innovation and external affairs, said: “In light of our intervention into Axiom, we have decided that it is necessary to review our consumer protection arrangements, which includes reviewing risks to client money and the effectiveness of our current arrangements for protecting against them.
“Having reflected carefully, we do not feel that it is the right time to make minor changes to the accounts rules while we are reviewing these wider issues. If our policy remains unchanged following our review, we will at that time seek your approval of these changes.”
The move affects three proposed changes. The first was to make clear that, in order to transfer funds from client account into a firm’s business account, the bill, or other written notification of costs, must be for costs that have already been incurred, and not in advance of the work being done.
The SRA had said the current wording of the rules was not clear that the definition of client money included money received from a client for costs or disbursements not yet incurred.
“We were concerned that these monies should properly be considered client money, as they attract additional protections that would not apply if they were considered client money and sat in a firm’s business account,” the application to the LSB said.
However, the Law Society was against this amendment, arguing that it was not ‘minor’ and could harm firms working on fixed fees.
The second change was a clarification that, where a firm had paid for a client’s disbursements itself, there was no requirement to deliver a bill or written notification of costs before moving money from the client account.
The third would have allowed law firms and individual solicitors operating a client’s bank or building society account to undertake reconciliation every 16 weeks, rather than the current five.
The LSB has now approved the remaining amendments. One allows solicitors to provide pro bono services outside of their firm or organisation without having to notify the SRA, although where they are reserved legal activities they will still need to have practised for a minimum of three years since admission and have adequate and appropriate insurance.
Another allows solicitors to administer oaths or statutory declarations outside their normal practice without regarding them as freelance solicitors, provided these are the only reserved legal services they handle whilst practising in this way, do not charge more than the statutory fee, and do not provide these services as a business.
A third helps owners who have a 10% share in a law firm. The SRA has to approve their ownership but “daily fluctuations can take the shareholder above or below that line and this has led to difficulties for those affected by this”.
The new rule states that approval only ceases for owners when they cease to be an interest holder, or a partner, as appropriate.
The reforms also clarify that only a solicitor holding a practising certificate is not required to go through the fit and proper person test when becoming a law firm manager or owner, and that a non-commercial entity must hold indemnity insurance only if providing reserved legal services to the public.
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