By Karen Edwards, Head of Professional Development at Legal Futures Associate ILFM
The Solicitors Regulation Authority (SRA) maintains strict requirements for financial record keeping within law firms. Understanding and implementing these requirements is not merely a regulatory obligation—it’s fundamental to maintaining client trust and protecting your firm’s reputation.
We’ve set out a reminder of why compliance is so important, and some practical top tips for those working in legal finance and accounts teams.
The importance of SRA compliance
SRA compliance goes beyond regulatory box-ticking. It serves as a crucial safeguard for both clients and law firms, ensuring transparency, accountability, and the proper handling of client funds. Non-compliance can result in severe consequences, including financial penalties, reputational damage, and even a potential intervention by the SRA.
The SRA Accounts Rules focus on principles-based regulation while maintaining rigid requirements for protecting client money. These rules exist to ultimately keep client money safe, by preventing fraud, ensuring proper client money management, and maintaining the integrity of the legal profession.
Essential record-keeping requirements
Client account records
Every law firm must maintain detailed records of all client money transactions. This includes:
– Individual client ledgers (to include the client’s name and appropriate matter description) showing all receipts and payments that are client money on the client side of the ledger and all receipts and payments that are not client money on the business side of the client ledger
– A central record or client control account with a running total of the balances
– A cash book showing a running total of all transactions through client accounts held or operated
– Statements from banks, building societies and other financial institutions for all accounts held or operated
– Three-way reconciliations at least every 5 weeks
– Clear documentation of bills raised and transfers
These records must be accurate, up-to-date, chronological and readily accessible for inspection. The golden rule is that you should be able to identify the current position with any client’s matters immediately.
Business account management
While client accounts often receive the most attention, however, proper business account management is also crucial. Firms must maintain:
– Detailed records of all transactions
– Clear differentiation between business and client money
– Documentation of all transfers between business and client accounts
– Regular reconciliation of business accounts
Common pitfalls and how to avoid them
Delayed recording of transactions
One of the most frequent issues is the delayed recording of transactions. This can lead to reconciliation problems and potential breaches. Set up a same-day recording policy for all financial transactions to maintain accuracy and compliance.
Incomplete documentation
Insufficient documentation often creates compliance issues. Ensure all transactions have:
– Clear narratives explaining the purpose
– Supporting documentation
– Proper authorisation records
– Clear audit trails
Reconciliation errors
Regular reconciliation is vital, but many firms struggle with:
– Unidentified discrepancies
– Delayed investigations of differences
– Incomplete or non-existent three-way reconciliations
– Poor documentation of the reconciliation process
Training Gaps
Staff training is often overlooked but is essential for maintaining compliance.
Regular training should cover:
– Updates of SRA regulations
– Internal procedures and policies
– Common compliance issues
– Best practices for record-keeping
Best practices for maintaining compliance
By implementing the following, firms can ensure they are in a strong position to keep up to date with compliance requirements:
Implement robust systems
Invest in appropriate accounting software that:
– Automates routine processes
– Provides clear audit trails
– Generates required reports
– Facilitates easy reconciliation
Regular internal reviews
Conduct periodic internal reviews to:
– Identify potential issues early
– Ensure consistency in record keeping
– Verify compliance with internal procedures
– Address any training needs
Clear policies and procedures
Develop and maintain:
– Written policies and procedures for all financial processes
– Clear responsibility assignments
– Documentation requirements
– Review and approval protocols
Prompt error resolution
When errors and breaches are identified:
– Investigate immediately
– Document breaches in a central register
– Document the investigation process
– Implement corrective actions
– Review procedures to prevent recurrence
As regulatory requirements evolve and technology advances, law firms must stay current with best practices in financial record keeping. Regular reviews of procedures, investment in appropriate technology, and ongoing staff training are essential for maintaining compliance and protecting both client interests and firm reputation.
The ILFM runs regular training sessions for those wanting to stay up to date with the latest developments in compliance and legal finance. For more information click here: https://www.ilfm.org.uk/site/training-and-events/
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