SRA Account Rules Flashcards
(47 cards)
What do you do if client money is lost or take?
You/the firm must report this breach to the SRA promptly - even where you/the firm have already replaced the money.
What are the risk outlook recommendations for you/the firm regarding controls?
Vital to have good accounting systems in order to protect client money.
Firms must:
- vet, train and supervise staff
- make sure everyone knows their responsibilities to keep client money safe;
- have business succession plan and contingency plans for accounting staff
- have systems for good account management and audit;
- have strong IT systems with good backups;
- reconcile accounts that are signed off by the compliance officer for finance and administration at least every 5 weeks;
- not allow the client account to be used as a banking facility ;
- engage with SRA about any concerns
What are the consequences for mishandling accounts?
SRA may refer to the SDT (solicitors disciplinary tribunal) for serious sanctions including striking off the roll if they have been dishonest.
Who is responsible for keeping client money safe?
All solicitors.
Who do the SRA account rules apply to?
Authorised bodies, their managers and employees.
Authorised bodies: bodies authorised by the SRA to practice as either bodies licensed by the SRA or bodies recognised by the SRA.
Managers: sole principal in a recognised role practice; members of an LLP; directors of a company; partners in a partnership; or any other body - a member of its governing body.
Who is responsible for compliance with the SRA Account rules?
Authorised body’s managers are jointly and severally responsible for compliance with the rules by the authorised body, its managers and its employees.
What is the structure of the SRA Accounts Rules?
13 Rules, 4 sections.
- Application (1)
- Client money and client accounts (2-8)
- Dealings with other money belonging to clients or third parties (9-11)
- Accountants reports and storage and retention of accounting records. (12-13)
What must be done if at any time during an accounting period you have held or received client money or operated a joint account or a client’s own account as signatory?
- obtain an accountant’s report for that accounting period within six months of the end of the period; and
- deliver it to the SRA within six months of the end of the accounting period IF the report is qualified to show a failure to comply with the account rule so that money belonging to clients or third parties is or has been or is likely at risk.
What must authorised bodies do within six months of the end of the accounting period if they deal with client money in some way?
They must obtain an accountant’s report within six months of the end of the accounting period to which the report relates.
When should the accountant’s report be delivered to the SRA?
Only when it is qualified.
This means it shows a failure to comply with the SRA Accounts Rules so that the client’s (or third party’s) money is/has been/is likely to be at risk.
Note: very minor breaches do not need to be reported
What is a qualified accountant’s report?
Factors that the SRA would expect to lead to a report being qualified:
- a significant and/or unreplaced shortfall on a client account unless caused by bank error and rectified promptly
- Actual or suspected fraud or dishonesty by the managers of the firm
- Accounting records not available or bank accounts/ledgers failing to include reference to a client
- Client account bank reconciliations not being carried out
- The client account improperly used as a banking facility.
When can the SRA require an accountant’s report?
SRA can require an authorised body to obtain or deliver an accountant’s report to the SRA on reasonable notice if:
- the authorised body has ceased to operate as an authorised body and to hold or operate a client account (i.e. final report)
- if the SRA thinks it is in the public interest to do so.
What are the two exemptions from the requirement to obtain an accountant’s report?
1) Where all of the client money held or received during an accounting period is from the Legal Aid Agency (but could be required if SRA requests - 1) ceasing to act as authorised body and operate client account 2) in public interest)
2) During the accounting period the average balance on its client accounts does not exceed £10,000 AND the maximum balance does not exceed £250,000 (but could still be required to)
What form must the accountant’s report take?
Accountant needs to be both a member of a chartered accountancy body AND work for or be a registered auditor.
Report must be in the form prescribed the SRA.
When can the SRA disqualify an accountant from preparing a report?
Where:
- found guilty by their professional body for professional misconduct
- SRA is satisfied the accountant has failed to exercise due care and skill in the preparation of a report
SRA may specify matter which need to be incorporated into the terms on which an accountant is engaged.
What information must be provided to the accountant?
- details of all accounts
- all other information and documentation that the accountant requires to enable completion of their report.
How long must all accounting records be stored?
Must store all accounting records securely and retain them for at least 6 years.
What are accounting records for SRA purposes?
Include:
- bank and building society statements
- accountant’s reports
- client’s written instructions to hold client money other than in accordance with SRA rules
- records relating to third party managed accounts
- any other records or documents necessary to show compliance with the SRA Accounts Rules.
Is a joint account a client account?
It is not a client account but money held in a joint account is still client money.
Joint account allows solicitor/authorised body to operate and manage the account and money in it along with another person. E.g. when a firm’s solicitor is named as a joint executor with a lay person on the administration of an estate.
How can a solicitor mitigate risks associated with joint accounts?
Obligation regarding money in joint accounts to make sure that you safeguard money and assets entrusted to you by clients and others.
Risks can be higher than if money is held in the firm’s client account.
Should mitigate those risks eg making sure the joint account has a joint signature mandate.
Which SRA Account rules apply to joint accounts?
Rule 1 - who the accounts rules apply to
8.2 - obtain, every 5 weeks, statements from banks etc for all client accounts and business accounts
8.4 - keep readily accessible a central record of all bills or other written notifications of costs given by you
12.1 - requirement to obtain accountant’s report unless one of the 2 exceptions is met.
13.1 - accounting records (bills and bank statements) need to be kept securely and retained for at least 6 years
What SRA rules apply if you operate a client’s own account as a signatory?
Rule 1 - who the accounts rules apply to
8.2 - obtain, every 5 weeks, statements from banks etc for all client accounts and business accounts
8.3 - every 5 weeks complete a reconciliation of the bank/building soc statements balance for the account with the cash book balance and client ledger total
8.4 - keep readily accessible a central record of all bills or other written notifications of costs given by you
12.1 - requirement to obtain accountant’s report unless one of the 2 exceptions is met.
13.1 - accounting records (bills and bank statements, reconciliations) need to be kept securely and retained for at least 6 years
What is a third party managed account?
TPMA must be:
- regulated by the FCA
- an authorised payment institution/EEA authorised payment institution which has adopted voluntary safeguarding arrangements to the same level as an authorised payment institution;
- an account at a bank/building society
- operated as an escrow payment service (the third party receives and disburses money on your and your client’s behalf); and
- the monies in the TPMA must be owned beneficially by the third party
Do you have to obtain an accountant’s report for third party managed accounts?
No.
But still need to store records securely for at least 6 years.
