SRA Accounts Rules – Written policies and procedures – worth a revisit

One issue that was raised in my previous article that it is worth firms and their accountants revisiting, is the need to document the policies and procedures the firm has in place to ensure their compliance with the SRA Accounts Rules.

As we know the Rules include far less prescription than previous versions and therefore more scope for firms to adopt processes that work best for them and their clients. That said, what hasn’t changed is the fundamental requirement to ensure that client money is protected.

This obligation to ‘safeguard money and assets entrusted to you by clients and others’ is contained within the Code of Conduct, and the Accounts Rules provide the framework for this protection. And that’s a key point. The Rules, while in some areas still detailed and prescriptive, provide a framework not a manual on ‘how to’. Firms themselves need to build their own detailed processes onto this framework.

We are now well over twelve months into the new regime and the evidence suggests that there are still a large number of firms, especially smaller firms, continuing to rely on a ‘we haven’t had to change anything, so we’ve just adopted the 2011 rules’ approach. While strictly applying many of the previous rules will no doubt lead to protection of client money in many cases, there are requirements around for example client account reconciliation and client’s own accounts that weren’t in the 2011 rules. Just because a firm is small does not negate the need to properly determine and document how you will ensure compliance.

Furthermore, firms that perhaps see no need to document their own policies and procedures should consider the fact that as the 2011 Rules recede further and further into the distance;

• Newly qualified solicitors will have been taught the latest principles based Rules;

• Training courses for accounts and fee earning staff are not going to be on the 2011 Rules; and

• Longer standing team members may continue to rely on (and instruct other on) out of date rules.

Staff coming through the system from now on, while they may have been taught the principles and some detailed rules, won’t know, for example; within what time frame does their firm require them to action transfers from client to office account to settle bills; who is allowed to authorise payments from the client account; how quickly they are expected bank client account cheques to meet the ‘promptly’ required under the rules; and so on.

One of the most common questions I am asked when doing in-house training in law firms is along the lines ‘my old firm always did X, but here they do Y. Was my old firm in breach of the rules or has this firm got it wrong?’ Historically, while there may have been some flexibility, there was typically one right way! Now of course they may both be acceptable.

I’ll reiterate and expand on what I said in the previous article, making no apology for doing so. Having properly considered and documented policies and procedures for dealing with client money and business money relating to client matters is important for both external and internal purposes.

• Provides evidence to the SRA of how the firm ensures compliance with the rules and principles;

• Sets out for the firm’s Reporting Accountant the framework against which (alongside the Rules and Guidance) they will carry out their review and report;

• Required for certain accreditations such as Lexcel;

• May impact PI Insurance premiums?

• Ensures clarity for both the accounts and fee earning teams of the firm’s procedures for compliance;

• Assists the COFA in determining whether a breach has occurred and in assessing the seriousness of any breaches;

• Required for training new staff involved in dealing with client money – particularly as differing systems and procedures evolve over time across different firms.

• Helps to implement and communicate changes either to the rules or to procedures. This has of course come home to roost during 2020 as many firms have had to adapt their working procedures during the Coronavirus pandemic, while still ensuring the protection of client money remains paramount.

I think that while Reporting Accountants may have until now taken a relatively light touch and ‘encouraging’ approach where firms don’t have written procedures and policies, as we go into the second and third years of review this missing ingredient is likely to lead to increased tension and misunderstanding between firms and their accountants who many feel as though they are testing in the dark.

^{*The views expressed are the author’s and not ICAEW}