Draft SRA Accounts Rules 2018 Published
The draft SRA Accounts Rules 2018 were published by the SRA on Wednesday 14 June 2017 and have been reduced to just seven pages containing twelve rules.
As expected, the Solicitors Regulation Authority (SRA) has, as a result of feedback received during their consultation on proposed changes to the SRA Accounts Rules, backed down on their controversial plan to change the definition of client money.
Whilst the majority of the consultation responses received by the SRA were supportive of the aim of simplifying the SRA Accounts Rules, there was widespread criticism of their proposal to amend the definition of client money so as to exclude payments on account of costs and certain disbursements as having to be treated as client money, as it is under the SRA Accounts Rules 2011 which are currently in force.
The revised definition of client money now includes money held or received by a firm in respect of fees and any unpaid disbursements if held or received prior to the delivery of a bill for the same. In our view, the whole issue of the treatment of a firm‘s fees and the billing process is likely to require further consideration by the SRA. Rule 4 of the draft SRA Accounts Rules 2018, states that, “where you are holding client money and some or all of that money will be used to pay your costs, you must give a bill of costs, or other written notification, to the client or the paying party and this must be done before you transfer any client money from a client”. Significantly, the phrase ’properly require‘ which features in the equivalent provision in the current SRA Accounts Rules is no longer in use. It is the presence of the words ’properly require‘ that prevents a firm from transferring funds from client to office bank account where a bill has been sent to the client but the work covered by the bill has not yet been completed. This important point is not covered under the draft SRA Accounts Rules 2018 which, at face value, seem to permit monies to be transferred from client to office bank account if a bill has been given to the client for ’work to be undertaken’, i.e. a payment on account of costs.
Another significant change, perhaps inadvertent on the part of the SRA, is that the obligation to send or give a bill to the client prior to transferring costs from client to office account now applies to the firm‘s ’costs‘ rather than the firm’s ‘fees’. Critically, the definition of ‘costs’ comprises the firm‘s profit costs and disbursements whereas the definition of ’fees’, which is used in the equivalent provision within the current SRA Accounts Rules, is purely the profit cost element of the bill. Therefore, it would appear, that under the draft SRA Accounts Rules 2018, a firm will not be able to transfer funds held in client bank account, to cover disbursements paid out of office monies on behalf of the client, prior to giving a bill to the client.
The rules relating to the handling of monies from the Legal Aid Agency have changed significantly as well. Under the draft SRA Accounts Rules 2018, monies received from the Legal Aid Agency can, as is currently the case, be paid into the firm‘s office account. However, the obligation to either pay any unpaid disbursements, or transfer the corresponding funds from office to client account, has been removed. The SRA consider that removing the provision for disbursements to be held in a client account if they are not paid within either 14 days (payments received where a funding certificate is in force) or 28 days (payments received under a civil or criminal contract) does not mean that firms will be able to hold payments from the Legal Aid Agency in their business account indefinitely. If, for example, a firm does not pay an expert’s fee and thereby delays a client‘s matter, this would constitute a breach of the SRA’s rule to make payments promptly and is also likely to be a breach of the SRA Code of Conduct.
It is important to realise that we have only seen part of the story so far. Whilst the SRA have simplified and shortened the SRA Accounts Rules, they have indicated their intention to publish additional guidance on the correct interpretation and application of the proposed new SRA Accounts Rules to be read in conjunction with the new rules. So, whilst we have a streamlined version of the SRA Accounts Rules, it is evident from the list of the areas where the SRA intend to issue further guidance, that we will be gaining a substantial amount of new material which will, inevitably, end up being treated as if they were rules rather than simply guidance! The SRA have identified the following areas where additional guidance will, most likely, be issued:
- Acting as a trustee and client money
- What is client money
- Name of client account
- Withdrawals to make payments to Charity
- Who can make withdrawals from client account?
- Residual balances due to a client
- Requirements to pay interest
- Accounting records and systems
- Accountant’s Reports
- Record keeping around operation of joint accounts
- Operation of a client’s own account
- Treatment of legal aid money/monies received relating to formal appointments (insolvency)
- Use of Third Party Managed Accounts
- Client account as a banking facility
- Waiver provisions
- Out of scope monies in an MDP
The SRA have stated that the draft SRA Accounts Rules 2018 will not come into effect before the Autumn of 2018. Before then, there will be a further consultation process with the scope for additional amendments to be made before the final version of the SRA Accounts Rules 2018 are presented to the SRA Board for approval.
Download the draft SRA Accounts Rules 2018 below: