Seamus Gates, Director, Broomfield & Alexander

Updated rules now accommodate Multi-Disciplinary Practices and external ownership of legal practices:

Out of scope money introduced to Rule 2 and defined as “money held or received by an MDP in relation to those activities for which it is not regulated by the SRA.” E.g. estate agency services, IFA work etc. There is no requirement to include it in client ledgers although firms must be able to quickly establish whether the money is client / office / out of scope, and deal with them accordingly. Firms are permitted to hold this money in office and client accounts but on a temporary basis. The money are not regulated by the SRA, therefore no need to comply with new rules and no need for Accountants to perform any specific testing.

Signing on client account – Rule 21 states that authorities (and client account cheques) may be signed by “an appropriate person.” This person should be suitable and consideration given whether “signing rights should be given to all managers of the practice or limited to those directly involved in providing legal services. Someone who has no day-to-day involvement in the business of the practice is unlikely to be regarded as a suitable signatory because of the lack of proximity to client matters. An appropriate understanding of the requirements of the rules is essential. ” An outside investor cannot be a signatory. Electronic signatories are now permitted, provided appropriate safeguards and controls are enforced e.g. passwords – it is suggested that this access is restricted to partners / members / directors only. If accounts staff are permitted to approve client withdrawals, it is suggested that additional testing is performed.

Electronic bank statements – Firms are now permitted to obtain and retain electronic copies of bank statements. Accounts staff must ensure that the statements cannot be doctored in any way.

Interest – The SRA have moved from a detailed and prescriptive method of calculating interest, on client accounts, to a requirement “when it is fair and reasonable to do so in the circumstances.”  Firms will need to document their written policy considering interest rates, length of time money is held, where the money is kept etc. The guidance notes within rule 22 acknowledge that the amount of interes paid “is unlikely to be as high as that obtainable by the client depositing those funds.” There is now no distinction between client accounts and designated client accounts, so interest can be paid into the office account. Firms will probably still adopt the current policy (including the £20 de minimis) as accounting systems may not be able to administer an alternative and justifications of increases to existing clients may be difficult, therefore different methods may be applied to existing and new clients.

Compliance Officer for Finance and Administration (COFA) – As per Rule 16, all Firm’s are now required to appoint a COFA, whether or not the COFA is a principal in the practice.  The COFA can be a principal / employee although they will need sufficient seniority and be in a position of sufficient responsibility to fulfil the role. The COFA needs to keep of record of any non compliance of Accounts Rules and make this list available to the SRA – any material breaches must be reported to SRA as and when reasonably practicable. There is no notes as to the definition of materiality, therefore difficult to ascertain what exactly needs to be reported to SRA.

Earmarked monies – Rule 17 includes new guidance notes on this topic including advice on what to do if bills need to be agreed with client before monies can be transferred from office to client account.

Pass-book operated separate designated client accounts – 5 weekly reconciliations must now be completed rather than the current 14 weekly reconciliations previously required.

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