New SRA Accounts Rules 2019
The new SRA Accounts Rules will be effective from 25 November 2019.
The new rules are more outcome focussed and with the number of rules being reduced from 52 down to only 13, they are also much shorter!
The protection of client money remains the key focus but there is much more scope for firms to apply their own professional judgement when considering how the new rules are met.
So, do firms need to do anything different?
In short, if firms are complying with the existing rules then very little will need to change.
However, there are a couple of specific points to note:
“Client money” is money held or received by you:
(a) relating to regulated services delivered by you to a client;
(b) on behalf of a third party in relation to regulated services delivered by you (such as money held as agent, stakeholder or held to the sender’s order);
(c) as a trustee or as the holder of a specified office or appointment, such as donee of a power of attorney, Court of Protection deputy or trustee of an occupational pension scheme;
(d) in respect of your fees and any unpaid disbursements if held or received prior to delivery of a bill for the same.
Therefore, monies held for incurred unpaid disbursements (such as search fees) are client money IF NOT YET BILLED. This is unlike now where payments received for disbursements incurred but not yet paid by the firm are office monies.
Where you are holding client money and some or all of that money will be used to pay your costs:
(a) you must give a bill of costs, or other written notification of the costs incurred, to the client or the paying party;
(b) this must be done before you transfer any client money from a client account to make the payment; and
(c) any such payment must be for the specific sum identified in the bill of costs, or other written notification of the costs incurred, and covered by the amount held for the particular client or third party.
Currently monies can be transferred from client account when it is properly required in reimbursement of money spent by the firm. ‘Spent’ includes the use of a credit account, such that search fees for example, may be transferred to the office account. HOWEVER, the new rules make clear that clients must be notified (by a bill or other written notification) before any transfer is made from the client account to the office account. Therefore, in order to maintain the current cashflow position you may have to raise a disbursement only bill. The alternative being to only transfer costs on the creation of a final bill, which may have a negative impact on cashflow.
- No distinction between disbursements and professional disbursements.
- Agreed fees will be classed as client money until a bill is raised.
- The COFA will need to review and sign off the client account reconciliations.
- Joint accounts and clients own accounts will be subject to reconciliations every 5 weeks.
Need for clear policies and procedures
In short there is more scope for firms to apply professional judgement. However, this judgement should be demonstrated through clear policies and procedures. It is against these policies and procedures that firms will be judged.
If you have any queries or would like to discuss further, then please contact us on 0113 257 4506 and ask for Mark Fenton.