Solicitors News

As you will no doubt be aware the changes in the Solicitors Accounts Rules (SAR) were implemented from 6 October 2011 and as such each firm conducting regulatory activity will need to be compliant with the new rules.  Split periods will apply so understanding the ‘old’ and the ‘new’ in the interim is a must. 

Whilst at first this may not seem too exciting, the changes in the rules does open the door for potential re-structuring with corporate members and an array of tax planning opportunities!

Alas, with any good news there is always bad news!  Focus must be on the new rules for your working practice which are explored below.

The main objectives to the changes are:

  1. To extend the obligation to comply with the rules to the firm providing the legal service as well as the managers and employees of the firm.
  2. To introduce a more outcome focused approach in specific areas ie the authorisation of withdrawals from client accounts and payments in lieu of interest.

While the above does not look too onerous there will be additional administrative burden as each practice will be required to appoint a Compliance Officer for Finance and Administration (COFA). It will be the COFA’s duty to ensure compliance is being met and any breaches occurring through the period are reported to the Solicitors Regulation Authority (SRA).

The rules also extend to the new business structures, Alternative Business Structures (ABS) and Multi Disciplinary Practices (MDP) that will be able to provide legal services.  It is these new structures where care needs to be taken in what constitutes client money and how it is separated from ‘other’ money.

What to look out for:

  1. Client money must be readily available (same day).  Be careful of money held on fixed term deposits etc
  2. More emphasis is placed on returning client money when there is no ‘proper’ reason to retain funds.
  3. Adequate steps must be in place to try and repay client money after a matter has completed. Remember, if all necessary steps have been taken to return the money, money held on clients, not exceeding £50, can be paid to charity without prior approval from the SRA.
  4. Documented systems and procedures must be in place governing withdrawals from client account by any means ie cheque and electronic payments. There must be clear authorisations in place and supporting evidence for such withdrawals.
  5. There is still a requirement to pay interest on client money but instead of the detail, the rules require a firm to have a written policy on the payments of interest which seeks to provide a fair outcome.
  6. Where there is a change in accountants and advisors you must notify the SRA.

 

The above points are by no way exhaustive and are only intended to give an insight to the changes. 

While the above is perhaps not too exciting, the changes in the rules for ABS and MDP does open the door for potential re-structuring with corporate members and an array of tax planning opportunities!

If you would like to discuss any of the points further or how we could help your firm then please feel free to contact our specialist SAR partners, Jonathan Hemmings (email: Jonathan.Hemmings@nunn-hayward.com) or Tom Lacey (email: Tom.Lacey@nunn-hayward.com).

We strongly advise that you review your procedures, highlight what needs to be addressed and implement the changes to ensure you are compliant with the rules.