Client Own Accounts - Full circle

Prior to the introduction of the 2019 Solicitors Accounts Rules (SAR 2019), there was no regulation specifically in respect of client’s own accounts (COA). A COA may be operated by a law firm in several scenarios. These include when a solicitor has been appointed as a Deputy under the Court of Protection or an Attorney (under a Power of Attorney).

In such situations a solicitor will have access to the COA, and this may involve making and receiving payments from/into this account. These monies are kept separately from the law firm’s general client account as they are different kinds of funds.

In the situations where a firm is instructed in respect of a COA, the holder of the account can often be vulnerable, for example, a child, mentally incapacitated or of advanced age. Therefore, there is a potential risk to such monies which is why a provision was introduced in the SAR 2019.

Rule 10.1 of the SAR 2019 states as follows:

If, in the course of practice, you operate a client's own account as signatory, Part 2 of these rules does not apply save for:

1. rule 8.2 - statements from banks, building societies and other financial institutions;
2. rule 8.3 - reconciliations;
3. rule 8.4 - bills and notifications of costs

Rule 8.3 states that reconciliations must be prepared at least once every 5 weeks. This caused confusion within the profession as there are situations where the law firm does not receive such statements in that time frame, and it was not clear how this rule fitted together with the systems and controls practices had over their general client account.

However, the guidance note on COA’s did state that “If you are unable to meet these requirements, we will not regard you as being in breach of the SRA Accounts Rules if you take reasonable steps to record – and satisfy yourself - that the client’s money is not at risk and to record the position.

Therefore, we would expect you to keep a:

1. central register of the client own accounts that you operate,
2. separate record of the transactions carried out by you or on your behalf in respect of the client’s own account, and
3. record of your bills and other notification of costs relating to that client’s matter”.

Despite this, it felt that the guidance and Rule 10 were not necessarily aligned as to the overall requirements. In mid-2023, the SRA proposed some minor changes to the Accounts Rules, which included on COA’s. The 3 points above were to be included in an amended Rule 10, and the requirement for a bank reconciliation would be extended from 5 to 16 weeks. A final draft of the amendment even took out the need for bank reconciliations at all.

However, late last year, the SRA decided against implementation of these changes at the present time. That meant we were left with what was introduced in the Rules issued in 2019. The Rule and the guidance should be read together, and it is only satisfactory for bank reconciliations not to be prepared in the given time frame where firms are “unable” to meet the requirement – so for example they do not have access to the bank statements at least once every 5 weeks.

There has been no reasoning as to why these amendments were put on hold, although following the Axiom case, the SRA are undertaking a full consumer protection review which includes a review of the Accounts Rules. So, we may eventually see amendments to Rule 10 come up again in the not-too-distant future.