The new Accounts Rules – what can you do?
On 25 November 2019 the SRA Accounts Rules 2011 will cease to have effect, and will be replaced by new accounts rules. In one quarter-stroke of the draftsman’s pen, 52 rules covering 50 pages of single-spaced typescript on pages of A4 will be replaced by 13 rules on 10 pages. The SRA has trumpeted loudly that the rules have been simplified and that they provide greater flexibility. Have they? Do they?
The new rules omit existing provisions which seek to explain the underlying principles and overarching objective of the accounts rules: to keep client money safe. Perhaps this is so self-evident a proposition that it does not merit articulating in a set of new rules. Maybe, though, the focus shifts from a purposive aspect of the rules to stricter compliance to the letter of the new rules. We shall discuss this in 4 New Square’s podcast on 5th November.
The existing rules impose a no fault obligation on all individual principals in the firm to comply with accounts rules (rule 6.1) and personally to remedy any breaches (rule 7.2). These provisions have provided easy targets for the SRA in the disciplinary arena. Such provisions have been omitted from the new rules. Does that mean that a partner who has delegated all responsibility for accurate accounting and record-keeping to another or others will no longer face regulatory responsibility for breaches of the rules? Or will there be similar regulatory responsibility under section 2 of the new Code of Conduct relating to compliance and business systems?
What amounts to client money? The existing rule 12, with its eight sub-rules and their 28 sub-sub-rules, has been replaced with rule 2 – placed right at the forefront of the new rules (is that significant?) – comprising five sub-rules and nine sub-sub-rules. Are there any subtle changes of emphasis or definition? We shall consider these.
Seven existing rules relating to the receipt of monies into a client account (rules 13-19) have been replaced by a very small number of sub-rules (2.3, 3.3, 4.1 and 4.2). The new rules employ far broader language than their predecessors – viz rule 3.3: “Payments into, and transfers or withdrawals from a client account must be in respect of the delivery by you of regulated services” (i.e. “the legal and professional services that you provide that are regulated by the SRA”). The new rules are by no means as prescriptive on their face as the existing rules as to what can and what cannot be paid into a client account. Does this mean that the landscape has changed? We shall examine the possibilities.
Finally, the existing rules (20 and 21) relating to withdrawals from client account – rules which have been the subject of controversy, particularly the current rule 20.1(a) permitting withdrawal of client money from a client account only if it is “properly required for a payment to or on behalf of the client” – are now to be replaced by a provision allowing such a withdrawal only “for the purpose for which it is being held” (rule 5.1(a)). Is this the same as the old provision, but just in different words? Or is it broader in scope? Who determines the purpose? Is there a reasonable degree of latitude as to what the purpose might be, or it is to be strictly confined to the relevant retainer between solicitor and client? These, and related questions of importance, will conclude our analysis of the most interesting aspects of the new accounts rules, soon in force.