If you’re a legal firm, you’ve no doubt heard about the updated Solicitors Account Regulations. These new regulations took effect on July 1st 2023 and are intended to better safeguard client funds and resolve areas where the 2014 regulations fell short or lacked clarity.

As a trusted accounting and auditing firm in Manchester and Liverpool, we’ve worked with clients from across the legal sector to help them make sense of these new regulatory changes since their introduction.

Here’s our summary of all of the key changes you need to know about.

Client Moneys

  • The definition of what counts as ‘client moneys’ has been expanded. It now includes any money a solicitor receives while acting as the personal representative of an estate. These estate funds must be deposited into the solicitor’s client account.
  • However, ‘client moneys’ does not mean money received or held by a solicitor that is unrelated to legal services the solicitor provides as part of their law practice. Only funds tied to the solicitor’s legal work qualify as ‘client moneys’ under the new regulations.

Moneys in a Client Account

  • Solicitors are not allowed to pass any personal moneys through the client account.
  • The notable exception is during the house-buying process. The proceeds of a loan from a financial institution may be paid into the client account provided that they are discharged within 14 days of receipt or in accordance with the terms of the loan.

Balancing Statements

  • Balancing statements for client funds must be prepared quarterly instead of twice yearly.

Withdrawals from Client Account

  • It must be stated in writing to the client if any moneys in a client account is used to pay the solicitors fee.
  • All withdrawals from a client account must specify which client it relates to.
  • If withdrawing cash from a client account, you need documentary evidence with the recipient’s witnessed signature.
  • Only partners or sole practitioners with a valid licence can authorise withdrawals from client accounts. If there are multiple signatures required, at least one must be a partner. Non-partners can only authorise withdrawals with prior written approval.
  • If there is a deficit in a client account that cannot be fixed within 7 days, the Law Society must be notified in writing as soon as possible.

Duty to Furnish Bills of Costs

  • Solicitors must provide clients with a statement showing all money received. This is for both moneys paid or held for each client matter. This can be part of the bill for legal fees or a separate statement.
  • Solicitors must keep documentary evidence in each client file showing they complied with legal requirements around informing clients about legal costs.

Books of Accounts to be Maintained

  • Client ledger balances must be reviewed regularly to address outstanding funds, money owed to clients, etc.
  • Client balances outstanding for 2 years or more must be reported to the Law Society, explaining the reasons why.

Minimum Accounting Records

You must now:

  • Maintain records of electronic client funds transfers.
  • Perform regular backups of computerised records, stored off-site.
  • Keep accounting records for the current and previous financial years on premises.
  • Maintain registers for joint deposits and undertakings.

Accountant’s Report

  • Provide the Law Society with an accountant’s report within 5 months of the accounting date. However, if you are ceasing practice you must provide final reports within 3 months.

Borrowing from Clients

  • You may not borrow from clients unless the client received independent legal advice or their business involves lending. 
  • In addition, funds in the client account cannot be used for loans.

Acknowledgements by Compliance Partner/Sole Practitioner

  • Confirm review of client balances, balancing statements, backup procedures, etc.

Changes for Reporting Accountants

  • Only qualified accountants per the regulations can act as reporting accountants.
  • You must test check client ledger transactions around the accounting date to check transfers from client to office accounts are properly supported.
  • If you suspect client fund deficits notify the Registrar directly.

Need Help Transitioning to the New Regulations? Contact us today

Those are the key changes from 2023, explained briefly. We understand that these changes will have an impact on many solicitors across the country. Williamson & Croft’s accountants are ready to support you with the impact to ensure a seamless transition.

Book an introduction with the go-to accountants for professional services, Williamson & Croft. Get in touch today.