Are you ready for potential changes to the SRA guidelines around client finances?

Managing your clients’ money is always a challenging business and something that requires complete compliance and the utmost transparency.

The Solicitors Regulation Authority (SRA) has recently concluded a consultation surrounding proposed changes to the ways in which client funds will be handled.

Although the consultation is not without controversy, it is worth thinking ahead and being prepared for the changes that are likely to be implemented as a result of the consultation.

The Law Society and other industry leaders have expressed reservations concerning most of the proposed changes, although some have warranted approval.

Which changes become law remains to be seen, but we will discuss some of the key proposals to ensure you are aware of them and can plan accordingly.

Mandatory accountant’s reports

You may recall the unusual decision by the SRA to remove the need for mandatory accountant’s reports back in 2015.

Due to ongoing concerns about regulatory oversight, one of the core proposals is the reintroduction of mandatory accountant’s reports.

The response to this proposal has been mostly positive, with many believing that it will improve transparency and provide a means of detecting financial misconduct before it can become a significant problem.

Unfortunately, this might see some additional compliance costs coming your way, as well as a likely increase in administrative costs.

Ultimately though, it will likely be a welcome return as a means of establishing a greater sense of trust between you and your clients.

Shift to third-party managed accounts

What may have a more negative impact on the trust you have established with your clients is the proposal to move towards third-party managed accounts.

As this proposal is being framed as a response to a widespread issue of corruption, it may negatively impact your clients’ view of the safety and security of solicitors.

The harm it will do to goodwill is highlighted by the Law Society and many other industry professionals.

Alongside the damage done to the reputation of solicitors, the need for using third-parties to manage client finances will almost certainly increase the cost of these transactions.

The third-parties are going to need some sort of contract and financial recompense, all of which will end up costing you more.

A lack of evidence behind this proposal is the cause of frustration for many, but it seems unlikely to halt the implementation of this.

As such, it is worth seeking professional financial advice early and determining how best to respond to this significant change in the way your business will be conducted going forward.

Limits on payments on account

Something that may end up limiting the flexibility and agility of your approach is the proposed limitation on the amount of client money that can be held in advance of legal work being conducted.

The proposal did not include a specific figure that will serve as the limit, and this may make planning around it a challenge.

Regardless of what the limit ends up being, if implemented, the proposal will restrict the financial flexibility with which you operate.

It is worth considering how you will approach work with reduced access to funds and work on strategies that may mitigate the impact of this on your operations.

What does it mean for the future?

You work hard to stay compliant with the rules, and it can be frustrating when proposals are made without solid data supporting them.

The main thing to think about for now is how you may begin to make changes to your operating procedures to ensure you remain compliant with changes.

Accessing funds seems to be a major target for the reforms, and the way you approach handling client finances may need to change quite significantly.

Seeking professional advice is always a smart move and never more so than when sweeping reforms are on the horizon.

For financial advice, including how to stay compliant in the future, speak to our team today.