How Safeheld Helps Law Firms Automate SRA Client Account Compliance

The SRA Accounts Rules 2019 are principles based and short, which firms sometimes mistake for undemanding. The obligations are clear and testable: keep client money separate from the firm's money, use client money only for the purpose for which it is held, return it promptly once there is no longer a proper reason to hold it, and keep accurate contemporaneous records.

The reconciliation obligation requires client account reconciliations at least every five weeks, comparing the cash book balance to the bank statement and to the total of client ledger balances, with the reconciliation signed off by the COFA or a manager.

Any breach must be corrected promptly, and a shortage on client account must be replaced from the firm's own money.

Because the rules are principles based, supervisory attention concentrates on whether the firm can demonstrate systematic compliance rather than whether it can point to a policy.

The required reconciliation is three way by design. The bank statement, the cash book and the total of client matter ledgers must all agree.

A two way check between bank and cash book proves the firm has recorded its banking correctly. It does not prove that the total owed to clients matches the money held, which is the question the rules exist to answer.

Differences between the cash book and the ledger total usually indicate posting errors, matters closed with residual balances, or transfers between matters that have been recorded on one side only.

Safeheld performs the three way comparison continuously rather than every five weeks, and investigates differences autonomously, so the five weekly reconciliation becomes a sign off on an already clean position rather than an investigation exercise.

Residual client balances are the most frequently cited issue in SRA enforcement activity relating to accounts. They accumulate when matters conclude and small amounts remain, often because the cost of returning them is perceived as exceeding their value.

The rule is unambiguous. Client money must be returned promptly once there is no longer a proper reason to hold it, and the firm's convenience is not a proper reason.

Detecting residuals requires monitoring matter status against ledger balance continuously, so that a matter concluding with a balance generates an action rather than sitting until a periodic review.

Continuous monitoring converts residual balance management from an annual cleanup exercise, which is itself evidence of a systematic failure, into a routine part of matter closure.

The COFA must keep a record of breaches, and the quality of that record is examined during any SRA engagement. A breach register that records only material breaches misrepresents the control environment as much as one that records nothing.

Where a shortage arises on client account, the firm must replace it promptly from its own money. The evidential chain from identification through decision, transfer and confirmation must be complete and attributable.

Escalation should reflect the firm's actual structure, routing to the COFA, the finance function and the relevant supervising partner according to materiality rather than to whoever noticed.

A structured escalation ladder with defined triggers, recipients and timings produces that record as a by-product of operating rather than as an administrative task performed afterwards.

Firms of any size hold client money across several accounts, sometimes across several banks, with designated deposit accounts for individual matters where interest is material.

Each account must be reconciled, and designated accounts must tie back to the matter they were opened for. Manual reconciliation of a large estate of designated accounts is one of the more thankless tasks in legal finance and one of the most error prone.

Format-agnostic ingestion with automated schema mapping allows every account to be reconciled from the data the bank already produces, without a separate process per bank.

An account that has stopped reporting is raised as an exception rather than dropping out of the population, which matters most for the designated accounts nobody looks at.

Where a firm is required to obtain an accountant's report, the reporting accountant will test whether reconciliations were performed at the required frequency, whether they were signed off, whether breaches were identified and corrected, and whether client money was returned promptly.

Firms that assemble this evidence at report time incur cost that is entirely avoidable, and frequently discover issues at the point they are least able to remediate them quietly.

The rules the reporting accountant tests against are the SRA Accounts Rules, not the FCA client money rules that apply to investment firms under CASS 7. A firm that has adapted an FCA-style client money control for its client account is likely to be reconciling against the wrong reference points, particularly on residual balances and the treatment of matters with mixed client and firm funds.

Safeheld keeps the three way reconciliation, the sign off history and the breach register current against live matter data, so the reporting accountant is testing a position the firm already knows rather than one assembled specifically for the visit.