9 September 2026
By Demsey Slater, Audit and Accounts Director
It has not gone unnoticed that there have been a series of cases involving high-profile law firms losing client money as they go insolvent.
This is a dire situation for the legal sector, as the erosion of trust in solicitors may negatively impact the sector in a way that can take years to rectify.
This is why I, and many others, welcome the proposed reforms to the Solicitors Regulation Authority (SRA) Accounts Rules 2019, which are intended to strengthen protections around client money. It is vital that law firms understand what is coming and how to prepare.
What is changing with the SRA Accounts Rules 2019?
Proposed changes to the SRA Accounts Rules 2019 are expected to come into force in early 2027, subject to final approval by the Legal Services Board. The reforms aim to strengthen oversight and ensure that risks are identified and dealt with much earlier than under the current regime. Under the proposed changes, all law firms that hold client money will be required to submit an accountant’s report annually, unless an existing exemption applies. Firms will also be required to provide further information through an annual declaration. It is expected that there may be room for exemptions in specific cases and I would advise law firms that do feel unreasonably disadvantaged by the changes to watch closely for these rules to be revealed.
Further key information will need to be provided alongside the annual accountant’s reports through a declaration to ensure that the SRA has a comprehensive sense of how client money is being stored and handled.
The accountant’s report will continue to be required within six months of the end of the accounting period. Under the proposed changes, all reports will need to be submitted to the SRA within that six-month period, and fixed financial penalties will be extended to cover certain late or non-submission. Additionally, the SRA is taking aim at the way that law firms conduct themselves more generally.
For too long, those with the keys to the kingdom were also those in charge of determining whether there was any wrongdoing.
Understandably, these roles will now become separate, with it no longer being acceptable for individuals in higher-risk firms to hold both a commanding position in the firm and serve as a compliance officer.
Currently, the definition of a higher-risk firm is one with a turnover of more than £600,000, or that holds more than £2 million of client money.
It is likely that this may expand in scope to ensure that all law firms have an in-house team member holding them to account – someone who themselves can be held to account should things still go wrong.
There will be a partial exemption for smaller sole owner-manager firms where there are practical constraints to separating the roles and where the firm generally presents different risk characteristics to larger or more complex practices. How should law firms prepare for the changes to the SRA Accounts Rules 2019?
While the rules are still awaiting approval from the Legal Services Board, it is clear that major reform is on the horizon.
Different law firms will need to make the appropriate preparations as soon as possible to ensure that systems are fully equipped to handle the new responsibilities.
For smaller law firms that were previously exempt, there will be a lot of ground to cover before the end of the year.
The existing exemption for firms holding small amounts of client money will remain in place. A firm can be exempt where the client money balance has an average of no more than £10,000 and a maximum of no more than £250,000 during the accounting period, subject to the other applicable conditions. However, firms relying on the exemption will still be required to make the new annual declaration confirming their exemption status. Similarly, larger law firms should begin the process of extricating the role of compliance officer from roles that involve making significant decisions about the firm.
It may take some time to find a suitable candidate and train a person for the new role, so beginning now is wise.
Our team is on hand to support law firms as they prepare for these new requirements.
I can assist with understanding and implementing these changes, as well as provide support with improving the financial systems that law firms have in place.
Whether you are dealing with an accountant’s report for the first time or simply want the confidence that your existing arrangements are compliant, our team can assist you.
We can support larger firms by equipping compliance officers with the knowledge they need to effectively tackle the new tasks that await them, further reducing the compliance risk your law firm faces.
Protecting client money and keeping your law firm compliant are both vital goals that require a collaborative approach to fully achieve.
Get in touch with our team to prepare for the upcoming changes to the SRA Accounts Rules 2019.