Overview of Rules

Question 1

Who do the rules apply to?

Answer 1

They apply to authorised bodies, their managers and employees.

Question 2

Who are ‘authorised bodies’ in the context of the rules?

Answer 2

They are bodies authorised by the SRA to practise or bodies recognised by the SRA

Question 3

Who are ‘managers’ in the context of the rules?

Answer 3

• sole principal in sole practice
• members of an LLP
• directors of a company
• partners in a partnership
• member of governing body in any other body

Question 4

Who is responsible for compliance with the rules?

Answer 4

The authorised body’s managers

Question 5

How are the authorised body’s managers liable?

Answer 5

They are liable jointly and severally

Question 6

What systems must firms have in place in relation to accounting rules?

Answer 6

No prescribed system

Firms must have systems and controls in place to ensure compliance. Those systems should be appropriate to the nature and volume of client transactions dealt with my the firm

Question 7

When must you obtain an accountants report?

Answer 7

If you have held or received any client money during the accounting period or operated a joint account or a client’s own account as signatory

Question 8

What deadline is there for obtaining an accountancy report?

Answer 8

Report must be obtained within six months of end of accounting period

Question 9

When must a report be delivered to the SRA?

Answer 9

If accountant’s report is qualified to show a failure to comply with SRA accounts rules so that the client’s money (or third party’s) has been or likely or is at risk.

Question 10

What would likely mean that an accountant’s report has to be qualified and sent to the SRA?

Answer 10

If there has been significant breaches of the rules. Examples:

• significant and/or unreplaced shortfall on client account
• actual or suspected fraud or dishonesty by managers or employees of firm
• accounting records not available or bank accounts/ledgers failing to include reference to a client
• client account bank reconciliations not being carried out
• client account being used as a banking facility
• persistent administrative errors due to lack of controls or breakdown of controls

Question 11

What exemptions are there to obtaining an accountancy report?

Answer 11

• if all client money held during the accounting period comes from legal aid agency
• the statement or passbook balance of client money does not exceed (i) on average £10,000 and (ii) a maximum of £250,000 or equivalent in foreign currency

Question 12

When can the SRA require you to deliver an accountant’s report to them aside from the rule about qualified reports?

Answer 12

Can on reasonable notice request one from authorised body if you cease to operate as an authorised body, cease to hold or operate a client account or if SRA considers it in the public interest

Question 13

What rules are there around the accountant who must produce the report?

Answer 13

Must be a member of a chartered accountancy body and work for a registered auditor

Question 14

How long should accounting records be securely stored for?

Answer 14

6 years at least

Question 15

What is classed as ‘accounting records’?

Answer 15

Bank and building society statements, the accountants’ reports whether qualified or not, any client’s written instructions about holding money other than in accordance with SRA rules, records relating to accounts managed by third parties and any other documents necessary to show compliance with SRA Accounts Rules

Question 16

What SRA accounting rules apply to joint accounts?

Answer 16

• bank statements need to be obtained for the accounts at least every 5 weeks
• a readily accessible record of all bill or other costs

Question 17

What SRA accounting rules apply where you are a signatory on a client’s own bank account?

Answer 17

• bank statements need to be obtained for the accounts at least every 5 weeks
• a readily accessible record of all bill or other costs
• bank recs need to be done at least every 5 weeks - does balance of account match client ledger total

Question 18

What is a third party managed account?

Answer 18

An account held at a bank or building society in the name of a third party which is an authorised payment institution in which monies are owned beneficially by the third party and which is operated upon terms agreed between third party, you and your client as an escrow service

Question 19

Is money in a third party managed account ‘client money’ under SRA rules?

Answer 19

No

Question 20

What requirements are imposed on third party managed accounts?

Answer 20

• authorised body has to ensure that use of TPMA does not result in them receiving or holding client’s money
• authorised body must take reasonable steps to ensure client is informed of and understands:

i) their rights and obligations and what use of TMPA means, in particular any charges or fees liable by them

ii) right to terminate agreement and dispute payment requests by firm

• authorised body must obtain regular statements and ensure these reflect transactions on accounts correctly

Question 21

Does an authorised body need to notify the SRA if they use a third party managed account?

Answer 21

No permission needed but SRA expects to be notified of:

i) use of TPMA
ii) if more than one TMPA user is used
iii) all providers used
iv) any change in providers