The SRA Accounts Rules govern how firms authorised by the Solicitors Regulation Authority handle money belonging to clients and third parties. Client money must be kept separate from the firm’s own money in a designated client account, paid in promptly, available on demand, returned as soon as there is no proper reason to hold it, and reconciled at least every five weeks. The current rules have applied since 25 November 2019.
The SRA Accounts Rules are now changing. On 2 June 2026 the SRA submitted a package of rule changes to the Legal Services Board. If approved and brought into force, every non-exempt firm holding client money will have to submit its annual accountant’s report to the SRA, whether qualified or unqualified. Every firm holding client money will also have to submit an annual declaration, including confirmation of any exemption relied upon. Specified late or missing reports and declarations would fall within the SRA’s fixed financial penalty regime.
What counts as client money under Rule 2
Rule 2.1 of the SRA Accounts Rules, still sometimes called the Solicitors Accounts Rules under their pre-2019 name, defines client money in four limbs. It covers money relating to regulated services delivered to a client; money held for a third party in connection with those services, for example as agent or stakeholder; money held as a trustee or office holder, such as a donee of a power of attorney or a Court of Protection deputy; and money received for fees and unpaid disbursements before a bill has been delivered.
That last limb catches more firms than any other. Money on account of costs is client money until the bill goes out. Rule 2.2 offers a narrow exception: where fees and unbilled disbursements are the only client money a firm receives, and the client has been told in advance where and how the money will be held, the firm need not operate a client account at all.
Three handling duties then follow. Client money is paid promptly into a client account (Rule 2.3, with limited exceptions including Legal Aid Agency payments for costs). It is available on demand unless a different arrangement is agreed in writing (Rule 2.4). And it is returned promptly once there is no longer any proper reason to hold it (Rule 2.5). None of these rules sets a fixed number of days. “Promptly” is for the firm to interpret and defend, which is one reason the SRA has separately consulted on whether to prescribe a period for returning residual balances.
Core SRA Accounts Rules obligations in practice
The client account itself must be held at a bank or building society in England and Wales, and its name must include both the firm’s name and the word “client” (Rule 3). Rule 3.3 prohibits using the account to provide banking facilities: every payment in and out must relate to regulated services the firm is delivering. This remains one of the most common failures the SRA sees, and it has a standing warning notice on it.
Client money stays separate from the firm’s money (Rule 4.1), and before any of it is transferred to pay the firm’s costs, a bill or written notification must be given, for the specific sum, covered by funds held for that client (Rule 4.3). Withdrawals are permitted only for the purpose the money is held, on the client’s instructions, or with the SRA’s prior written authorisation, and only where sufficient funds are held for that specific client (Rule 5). Taking one client’s money to cover another’s shortfall breaches the SRA Accounts Rules even where the ledger balances overall.
Breaches of the SRA Accounts Rules must be corrected promptly on discovery, and money improperly withdrawn must be replaced immediately (Rule 6). Firms must account to clients for a fair sum of interest (Rule 7). Under Rule 8, bank statements must be obtained and client accounts reconciled at least every five weeks, with the reconciliation signed off by the COFA or a manager. Accounting records must be kept for at least six years (Rule 13). Responsibility sits at the top: Rule 1.2 makes a firm’s managers jointly and severally responsible for compliance by the firm and everyone in it.
Accountants’ reports: how the regime works today
Under Rule 12 of the SRA Accounts Rules, a firm that has held or received client money during an accounting period must obtain an accountant’s report within six months of the period ending. The report only has to be delivered to the SRA if it is qualified, meaning the accountant found failures that put client money at risk. Firms are exempt where the only client money received came from the Legal Aid Agency, or where balances did not exceed an average of £10,000 and a maximum of £250,000 over the period.
That obtain-but-rarely-deliver design is the regime’s weakness, on the SRA’s own account. The regulator has said it lacks the information to monitor compliance effectively, and its spot checks found firms that had not obtained a report at all. Clean reports never reach it, and a missing report is invisible until something else goes wrong. The 2026 reforms are aimed squarely at that gap.
- 25 Nov 2019 Current SRA Accounts Rules come into force
- 20 Feb 2026 Client money consultation closes
- 2 Jun 2026 Rule changes submitted to the Legal Services Board
- Early 2027 Amended SRA Accounts Rules expected in force, subject to LSB approval
What is changing in the SRA Accounts Rules: the 2026 reform package
Between December 2025 and 20 February 2026 the SRA consulted on strengthening the accountants’ report regime and the checks and balances provided by compliance officers. On 2 June 2026 it confirmed the outcome and submitted proposed changes to the SRA Accounts Rules to the Legal Services Board for approval. Sarah Rapson, the SRA’s chief executive, said the changes will help the regulator “identify risks earlier” and strengthen accountability within firms.
The package has three parts.
Mandatory submission of accountants’ reports
Every non-exempt firm holding client money would be required to submit the annual accountant’s report it is required to obtain, whether qualified or unqualified. Every firm holding client money would also have to submit an annual declaration containing key information about its reporting position. A firm relying on an exemption would confirm that status through the declaration.
Fixed financial penalties for non-compliance
The proposed amendments would extend the fixed financial penalty regime to specified failures involving late or missing accountant’s reports and annual declarations. Such a failure could therefore result in a fixed penalty following the applicable regulatory process, rather than being identified only through a later inspection or investigation.
Separation of compliance roles in higher-risk firms
Firms with turnover above £600,000, or holding more than £2m of client money, will have to ensure that individuals who can make significant decisions about how the firm is run are not also its COLP or COFA. The SRA’s reasoning is that no single person should both run a firm and oversee its compliance with the client money rules, because that concentration lets problems go undetected and unreported. A partial exemption will apply to smaller sole owner-manager firms, where separating the roles is often impractical and the risk profile differs.
Subject to LSB approval, the SRA expects the new rules in force by early 2027. The wider question of whether firms should hold client money at all remains open: the SRA’s draft 2026/27 business plan commits to examining the long-term model, including clearer personal responsibility for senior individuals, and proposals on interest, residual balance deadlines and third party managed accounts from the earlier consultation have been deferred rather than dropped. A further consultation on strengthening notification requirements around client money opened in summer 2026.
What firms should do before the new rules arrive
The sensible preparation is mostly administrative, which is exactly why it gets missed. Check when your accounting period ends and confirm your reporting accountant engagement covers submission to the SRA, not just preparation of the report. If your firm relies on the Rule 12.2 exemption, document the average and maximum balances that support it, because exemption status becomes a reportable claim the SRA can test rather than a private judgement.
Firms near the £600,000 turnover or £2m client money thresholds should map who currently holds the COLP and COFA roles against who actually controls the business. Where an owner or managing partner holds a compliance role, succession planning takes time: identifying, appointing and notifying replacement officers is not a task for the month the rules commence. The role-separation requirement sits alongside the wider expectations on compliance officers covered in our 2026 COLP strategy guide.
Finally, treat the reform as a prompt to clear the low-level SRA Accounts Rules breaches that qualified reports most often record: aged residual balances, reconciliations signed off late, and client-to-office transfers made before a bill was delivered. If the proposals take effect, reports obtained by non-exempt firms will be submitted routinely to the SRA, meaning that findings recorded in those reports will be directly visible to the regulator. Firms already tightening source of funds work under the AML regime, covered in our guide to the UK money laundering crackdown, will recognise the direction of travel: regulators want evidence, not assurance.
The current rules, the consultation outcome and the June 2026 announcement are all on the SRA’s website: the SRA Accounts Rules, the client money consultation, and the 2 June 2026 news release.
Frequently asked questions
What are the SRA Accounts Rules?
The SRA Accounts Rules are the Solicitors Regulation Authority’s requirements for firms that receive or deal with money belonging to clients or third parties. They require client money to be kept separate in a client account, paid in promptly, available on demand, returned when no longer needed, and reconciled at least every five weeks. The current version has been in force since 25 November 2019.
How long can solicitors hold client money?
There is no fixed period. Rule 2.5 requires client money to be returned promptly to the client as soon as there is no longer any proper reason to hold it. What counts as prompt depends on the matter, and the firm must be able to justify its timescale. The SRA has consulted on introducing a prescribed period for returning residual balances, but no fixed deadline is currently in the SRA Accounts Rules.
Who must obtain an SRA accountant’s report?
Any firm that held or received client money, or operated a joint account or a client’s own account as signatory, during an accounting period. Rule 12 of the SRA Accounts Rules requires the report to be obtained within six months of the period ending. Firms are exempt if the only client money received came from the Legal Aid Agency, or if balances did not exceed an average of £10,000 and a maximum of £250,000.
What is changing about accountants’ reports in 2026?
Under proposed changes announced by the SRA on 2 June 2026, every non-exempt firm holding client money would have to submit its annual accountant’s report to the SRA, whether qualified or unqualified. Every firm holding client money would also have to submit an annual declaration, including confirmation of any exemption relied upon.
Which firms must separate compliance roles from decision-makers?
Firms with turnover above £600,000, or holding more than £2m of client money, will have to ensure that people who can make significant decisions about how the firm is run are not also the COLP or COFA under the amended SRA Accounts Rules. A partial exemption will apply to smaller sole owner-manager firms.
How often must client accounts be reconciled?
At least every five weeks. Rule 8.3 of the SRA Accounts Rules requires a reconciliation of the bank statement balance against the cash book and client ledger total, signed off by the COFA or a manager, with any differences investigated and resolved promptly.
What to do before early 2027
The SRA Accounts Rules are not changing in their fundamentals: separation, prompt handling, five-weekly reconciliation and honest records remain the core. What changes is visibility. Subject to LSB approval and the final commencement arrangements, the SRA expects phased implementation from early 2027. Under the proposals, it would receive accountant’s reports from all non-exempt firms, together with annual declarations from every firm holding client money, including declarations recording any exemption relied upon. Confirm your accountant engagement, evidence any exemption, check your COLP and COFA appointments against the new thresholds, and clear the ledger issues a report would flag. Firms that do this in 2026 will find the new regime an administrative formality. Firms that do not will find out what the fixed penalties cost.