Manage client money under SRA Accounts Rules

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 (now limited to Swiss-qualified lawyers under the UK–Switzerland agreement) 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.

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 under Rule 2.3 are:

• the money is held as trustee or as the holder of a specified office or appointment and paying it into a client account would conflict with your obligations in that capacity
• the money is a payment from the Legal Aid Agency for your costs
• you agree an alternative arrangement in writing with the client, or the third party for whom the money is held, in the individual circumstances

Separately, under Rule 2.2, if the only client money you hold is money for your fees and unpaid disbursements received before you have delivered a bill, you do not maintain a client account for any other reason, and you have told the client in advance where the money will be held, you do not need to pay it into a client account. There is no exception for endorsed cheques in the 2019 rules. Rule 4.3 governs mixed payments, covered below.

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), Rule 4.3 requires you to allocate the funds promptly to the correct accounts. The safest compliant approach is to pay the entire sum into the client account and then promptly transfer the firm's portion to the business account once the funds have cleared — but this is a recommended approach, not a requirement of the rule.

Residual balances

When a matter concludes, you must return any remaining client money promptly. Withdrawing a residual balance for any other purpose requires the SRA's prior written authorisation unless the prescribed circumstances apply (Rule 5.1(c)). If you cannot trace the client despite taking and recording reasonable steps, a balance of £500 or less on any one client matter may be withdrawn and paid to a charity of your choice without SRA authority. You must keep the records for six years, maintain a central register of charity payments (owner, amount, charity name and number, date of payment), and must not deduct the costs of tracing. For balances over £500, you must apply to the SRA for authority to withdraw the money.

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 within six months of the end of that period (Rule 12.1(a)). The report must be prepared by a qualified reporting accountant. You only need to deliver the report to the SRA — within the same six months — if it is qualified, meaning the accountant identifies a failure to comply with the rules such that money belonging to clients or third parties is, has been or is likely to be placed at risk (Rule 12.1(b)). If the accountant gives a clean report, you keep it on file but do not need to submit it.

You are exempt from the accountant's report obligation altogether if all the client money received in the period came from the Legal Aid Agency, or if the statement or passbook balance of client money did not exceed an average of £10,000 and a maximum of £250,000 in the period (Rule 12.2).

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