Following the SRA’s recent consultations the SRA have now announced that they are implementing reforms aimed at improving the safety of client money held by law firms. The proposed changes have been submitted to the Legal Services Board (LSB) for approval, with the expectation being that changes will come into effect in early 2027.
The proposals are largely in line with expectations based on the questions asked in previous consultations, and centre around Accountant’s Reports and Compliance Role holding.
Accountant’s Reports
All law firms that hold client money will be required to submit their Accountant’s Reports to the SRA annually, alongside declaring further key information. Where firms are exempt from the requirement to obtain an Accountant’s Report, they will be required to submit information on their exemption status. Financial fixed penalties will be introduced for late submission or non-compliance, the level of penalties are unclear at this stage. The SRA’s announcement does not give any indication of the possibility for extensions to be granted.
While this change was largely supported by responses to the consultations and marks a return to the previous requirements to file all Accountant’s Reports, there is no indication yet of how reports and further information will be filed with the SRA, or what the further information might be. The SRA appears to have stopped short of requiring Reporting Accountants to file the report on behalf of firms, so it seems that this will be the responsibility of the firm.
Role holding
‘Higher risk’ firms with a turnover of more than £600,000 per year, or those holding more than £2 milion of client money will be required to ensure individuals who can make significant decisions about the running of the firm cannot also hold the roles of COLP and COFA. At this stage, there is no formal definition of what are deemed to be significant decisions, although it is likely that there will be further guidance issued in due course. It is unclear from current information whether this preclusion will be in respect of individuals holding one of the roles with another individual taking on the other or preventing such individuals holding either role.
In line with expectations, there will be a partial exemption for sole owner manager firms, further details of the partial exemption have not yet been published.
To find out more, please read the SRA's release. If you have any questions, please contact your usual Crowe contact.
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