Further to our previous alert on the SRA Standards and Regulations in July, the new SRA Accounts Rules are now effective, bringing greater flexibility and less prescription. However, with greater flexibility comes an increased burden upon firms to ensure that they have robust systems in place which are adequately documented.
We have summarised the key changes that will impact most firms, contact our specialist team if you require a more thorough analysis of the impact on your firm.
The new Rule 4.3 stipulates that a notification of costs must be given to the client or paying party prior to any funds being transferred from client to office account. We anticipate that this will impact firms that transfer disbursements prior to a matter being billed.
It is important to note that a notification of costs does not necessarily need to be a formal bill; it could be an email, letter or any other form of written notification.
Monies received from the Legal Aid Agency are no longer specifically dealt with by the SRA Accounts Rules. As such, all monies should now be paid into the business (office) account, and all disbursements and recoupments settled from office funds. This may give some firms an initial cash flow benefit as unpaid professional disbursements are transferred from the Client Account. However, firms must exercise caution to ensure that sufficient cash resources are available to settle liabilities as they fall due.
Now covered by Rule 10.1, the operation of a client’s own account by a firm is subject to greater scrutiny than before. The Rules now stipulate that bank and building society account statements should be received at least every five weeks, a central register of bills or other written notifications of costs should be maintained and, crucially, reconciliations should be performed at least every five weeks. This final point has created uncertainty as many firms do not maintain separate cashbooks and ledgers in respect of these accounts.
The SRA has released guidance stating that if a firm is not able to produce a reconciliation, they at least expect a firm to maintain:
Previously prescriptive timeframes have been removed and, in most cases, replaced with a simple word; ‘promptly’. This applies to client account receipts and client to office transfers. Firms are now expected to set their own policies that are both realistic for the firm and fair to clients.
We anticipate that ’promptly’ will differ from firm to firm, with factors such as work types, geography and the number of offices a firm operates from all being contributory factors. Documentation of your policy choice will be necessary.
The new Rules now specifically authorise the use of third party managed accounts (TPMAs), with the intention that both the firm and the client are party to any payments made from an account provided by a specialist provider. A number of criteria apply to those firms wishing to take up this option.
It is now a specific requirement that the five-weekly reconciliations are formally signed off by the COFA or a manager (partner) and all differences identified by this key control are promptly investigated and resolved.