Professional & Financial Services UK-wide

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.

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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.

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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 approved by the SRA. In a recognised sole practice, the SRA can deem the sole principal to be the COLP and COFA on authorisation, but approval is still required. 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 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.

Penalty risk
Penalty:
Serious or persistent breaches of the SRA Accounts Rules can lead to referral to the Solicitors Disciplinary Tribunal. The SDT can impose unlimited fines, suspend or revoke practising certificates, and strike solicitors off the roll. The SRA can also intervene directly in a firm to freeze client accounts and protect client money.

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

Official guidance and legislation