TAKING THE CLIENT INTO ACCOUNT

The SRA’s new Accounts Rules

Written by Trevor Hellawell

 

 

Amid the debate surrounding the revamping of the SRA’s Handbook, and the tempting possibility of undertaking wholly non SRA-regulated legal services, one finds an exploration of the SRA’s new Accounts Rules. These are also subject to an overhaul and a rethink, and are subject to the same response timelines.

 

Amongst the several advantages paraded of practising in the unregulated sector (cheaper prices not being the least of them) comes the thought that there would  be no Accounts Rules to worry about either.

 

Leaving that thought to one side for a moment, I wanted to consider the proposed new Rules in their own right – for the benefit of those who wish to continue under SRA regulation.

 

The proposals have set about reducing the length and complexity of the Accounts Rules, which had not benefitted from the last edits (unlike the rest of the Handbook) in 2007 and 2011.

 

The old rules were complex and seemingly unnecessary given the advent of much technology and IT advancements in the years since their introduction, and were too box-ticking in their detailed approach to a range of issues.

 

Intermittent tweaks (mainly to the requirements in relation to reporting Accountants) had altered the impact somewhat, only requiring the SRA to be sent the report if it was qualified, and then by requiring that ‘qualification’ meant only if there was some real risk to client money. For example, of the 4500 reports sent to the SRA in 2014, only 179 evinced any real threats to client funds.

 

So the new Rules redefine what is ‘client money’ as being those funds that firms hold for clients as part of their retainer, but excluding any payments for costs and for disbursements for which the firm will be liable. They dispose of the definition of ‘office money’ (leaving the firm to decide how it deals with its own funds), provide that client money is left in a separate account until required, and dictate its prompt return when the matter is concluded. Much of the detailed prescription of how to account for mixed payments and the like has been removed, requiring only that the money be promptly banked into the right place. Rules on interest have been removed, but COFAs haven’t.

 

There is some concern that the rights of the consumer – sorry, client – have suffered as a result of the firm’s ability to claim any costs as its own (even before doing the work) but the available redress against other deep pits mitigates the real risks.

 

All this presupposes that a law firm still wants to be SRA-regulated at all. There really is no reason to be. A firm can offer unregulated services already and choosing not to be SRA-regulated will give the firm many opportunities to offer (say) conveyancing services via different mechanisms and still with scope for protection of the client.

 

However, my view is that there are some significant downsides to abandoning SRA-regulation. The use of the term ‘solicitors’ for one, the lack of Compensation Fund claims (up to £3m over the last 2 years in respect of property matters), the lack of any robust regulation of how client funds are to be dealt with and, crucially, the lack of the comfort of legal professional privilege are all to be weighed in the balance. Cheap fees come at a price.