Guide
Manage client money under SRA Accounts Rules
Set up and manage a client account to comply with the SRA Accounts Rules 2019. Covers what counts as client money, when to pay money in and out, reconciliation procedures, residual balances, record keeping, and the accountant's report requirement. Applies to all SRA-authorised firms in England and Wales.
If your firm is authorised by the Solicitors Regulation Authority (SRA), you must follow the SRA Accounts Rules 2019 whenever you hold or receive money belonging to clients or third parties. Getting this wrong can result in SRA enforcement action, referral to the Solicitors Disciplinary Tribunal, or intervention into your firm.
This guide walks you through setting up a compliant client account, handling client money day to day, and meeting your ongoing reconciliation and reporting obligations. It applies to all SRA-authorised individuals and firms in England and Wales.
Who this applies to
You must comply with the SRA Accounts Rules 2019 if you are:
- a solicitor holding a current practising certificate
- a partner, member, or director in an SRA-authorised firm
- a registered European lawyer or registered foreign lawyer practising through an SRA-authorised firm
- a compliance officer for finance and administration (COFA) at an SRA-authorised body
Even if your firm rarely handles client money, you must have systems in place to identify it when it arises and deal with it correctly.
Setting up your client account
Before you can accept client money, you need a properly constituted client account. The following steps cover what is needed to set one up from scratch. If your firm already has a client account, use these steps to verify it meets the current rules.
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1. Choose an eligible banking institution
Your client account must be held at a bank or building society authorised under the Financial Services and Markets Act 2000 (FSMA 2000), or at the Bank of England. This gives your clients the protection of the Financial Services Compensation Scheme (FSCS). Check the Financial Conduct Authority (FCA) register to confirm your chosen bank is authorised before opening the account.
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2. Open a separate designated client account
The account must be entirely separate from any account holding the firm's own money. You can choose between a pooled client account (holding money for multiple clients in one account) or separate designated client accounts for individual clients. Many firms use a pooled account for day-to-day transactions and designated accounts for large sums such as property completion funds.
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3. Ensure the account name includes the word 'client'
Under Rule 3.2, the name on the account must include the word 'client' to make it clear the money does not belong to the firm. For example: 'Smith and Jones LLP Client Account'. Provide your bank with written confirmation that the account is a solicitor's client account, as this affects how the bank treats the funds.
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4. Set up your accounting systems and client ledgers
You must maintain accounting records that show the position on each client matter at all times. Set up individual client ledger accounts within your practice management system. Each ledger must show all receipts, payments, and transfers, with the running balance for that client. Records must be kept for at least six years from the date of the last entry.
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5. Establish reconciliation procedures
Put a recurring process in place to reconcile your client account at least once every five weeks. The reconciliation must compare the balance on the client account bank statement, the total of all individual client ledger balances, and a cash book balance. Document who is responsible for carrying out the reconciliation and who reviews it. Reconciliation records must be retained for at least six years.
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6. Appoint a compliance officer for finance and administration (COFA)
SRA-authorised bodies must have a COFA whose role is to ensure the firm complies with the Accounts Rules. The COFA must be registered with the SRA. If you are a sole practitioner, you are the COFA by default. Ensure the COFA has adequate training and access to all financial records.
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7. Brief all fee earners on client money procedures
Every person in the firm who handles client money must understand the rules. Provide written procedures covering what counts as client money, how to identify it, the requirement to pay it into the client account promptly, and how to request payments out. Keep records of training provided.
Handling client money day to day
Paying money into the client account
When you receive client money, you must pay it into the client account promptly. The SRA does not define a specific number of days, but best practice is to bank client money on the day of receipt or the next working day. The only exceptions are:
- the client gives you written instructions to hold the money in a different way
- the money is received for your agreed fees or for disbursements already incurred (these can go into the firm's business account under Rule 4.3)
- a cheque or draft is endorsed over to the client, payee, or a third party
Withdrawing money from the client account
You may only withdraw money from the client account in specific circumstances under Rule 5:
- to make a payment on behalf of the client (for example, paying a disbursement or completing a property purchase)
- to transfer agreed fees to the firm's business account, provided you have given the client a bill or written notification of costs
- to return money to the client
- to make a payment authorised by the SRA
You must not withdraw more than is held for that particular client. If a shortfall arises on one client ledger, you cannot use funds held for a different client to cover it. Any shortfall must be replaced immediately from the firm's own funds.
Mixed payments
If you receive a payment that includes both client money and money due to the firm (a mixed payment), the entire sum must be paid into the client account first. You may then transfer the firm's portion to the business account once the funds have cleared. This protects the client money element.
Residual balances
When a matter concludes, you must return any remaining client money promptly. If you cannot trace the client despite taking reasonable steps, or the balance is too small to justify the cost of returning it, you may withdraw the residual balance from the client account. Any money withdrawn in this way must be paid to a charity. Keep a record of the steps you took to return the money and the date the balance was paid to charity.
Record keeping
Under Rule 13, you must keep accounting records for at least six years from the date of the last entry. Your records must be sufficient to show the position on each client matter at any given time and must include:
- client ledger accounts showing all receipts, payments, and transfers
- bank statements for all client accounts
- reconciliation statements and working papers
- bills or notifications of costs delivered to clients
- evidence of authority for withdrawals from the client account
Accountant's report
If your firm holds or receives client money during an accounting period, you must obtain an accountant's report for that period. Under Rule 12, the report must be prepared by a qualified reporting accountant. However, since the 2019 rules took effect, you only need to deliver the report to the SRA if the accountant identifies a qualified or non-trivial departure from the rules. If the accountant gives a clean report, you keep it on file but do not need to submit it.
The report must be delivered to the SRA within six months of the end of the accounting period if issues are found.
What happens if things go wrong
Material breaches of the Accounts Rules must be reported to the SRA promptly. This includes shortfalls on client account, improper withdrawals, failure to reconcile, and inadequate record keeping. The SRA's enforcement actions range from issuing a written rebuke through to intervention into the firm to protect client money. In serious cases, individuals may be referred to the Solicitors Disciplinary Tribunal (SDT), which can impose unlimited fines, suspend practising certificates, or strike solicitors off the roll.
What to do next
Once your client account is set up and your procedures are in place:
- Carry out your first reconciliation within five weeks of opening the account
- Review your procedures at least annually and whenever the SRA updates its guidance
- Ensure your COFA has completed the SRA's training and reporting requirements
- Arrange for a reporting accountant to carry out your first accountant's report at the end of your accounting period
- If you are setting up a new firm, confirm your client account details with the SRA as part of your authorisation application