Number of accountant’s reports to SRA over law firms’ handling of client money falls by more than a quarter

The firm, which specialise in the legal profession, says the fall suggests that law firms are improving their systems and controls for managing client money. The primary drivers behind the remaining breaches include:

According to the SRA, very little regulatory or disciplinary action usually results from qualified reports. They often pick up on technical breaches which rarely cause detriment to clients.

However, some material breaches do result in substantial fines. In one recent example, a London law firm and one of its former partners were fined £35,000 and £15,000 respectively over substantial payments made on behalf of a client.

The SRA is also focusing in on money laundering risks at law firms, having found two-thirds of firms falling short in their compliance procedures during a recent review of 50 firms. It has now imposed disciplinary measures on six of those firms.

Since 2014, the SRA has relaxed the reporting requirements to reduce the number of reports that need to be submitted. Under the new rules, accountants should only report failings where they are likely to have been intentional or where client money was put at risk.

Fewer cases means that firms are better able to identify significant problems and find solutions. It also means that the SRA also has more time to spend on investigating each report.

Andy Harris, Associate Partner in Hazlewoods’ Legal Team, said: “This sharp decline in overall problems is very positive news for the legal sector. Reports of breaches are falling as finance teams at law firms settle into the new regime, and as law firms take those reports that are submitted more seriously.”

“With fewer breaches being reported by accountants, who were previously often reporting on fairly trivial points, law firms are now better able to see where any issues really lie and pro-actively put them right.”

“Many of these issues may only be technical breaches, but it’s still important that they are identified quickly and addressed. The SRA also has more time to focus on reviewing the most important cases. That can only be a good thing.”

“Solicitors want to help their clients by doing as much as they can for them. However, if they act outside of their original remit, for instance by making payments on a client’s behalf - even if requested by them to do so - this can actually constitute a breach of the SRA’s rules.”

“It’s encouraging that the SRA now has more time to follow up with firms to ensure that where a potential problem is flagged up, the issues are rectified.”