The Solicitors Regulation Authority has opened a consultation on a new rule that would force firms to tell it about two things before they happen: mergers or acquisitions reaching Heads of Terms stage, and the first time a firm starts holding client money.
- What’s proposed: a rule requiring firms to notify the SRA of “prescribed events” set by the regulator
- First two events: mergers/acquisitions reaching Heads of Terms stage, and firms starting to hold client money for the first time
- Timeframes proposed: the SRA is consulting on whether 30 days’ notice should apply before a merger completes; 28 days after starting to hold client money is a firm proposal
- Enforcement: fixed financial penalties proposed for late or incomplete notifications
- Consultation closes: 9.00am, Monday 17 August 2026
This is the third phase of the SRA’s client money reforms in as many months. Earlier in June, the regulator confirmed firms holding client money must submit accountants’ reports whether qualified or not, and that firms above certain size thresholds can no longer let one person hold both the COLP and COFA roles. Those changes are already settled. This new consultation is still open, which means firms have a genuine window to shape the final rule.
Why the SRA wants advance warning
Right now, the SRA only learns about a merger after it has happened, when ownership changes trigger an approval requirement. By that point, the deal is done. Systems may already be integrated and client money may already have moved between accounts.
The same gap exists for client money generally. A firm can start receiving client funds without telling the SRA until its next practising certificate renewal, which can be the best part of a year away. The regulator has said plainly that its current information requirements were never built to track risk in real time. Most of what it collects is historical, reported after the fact at authorisation or renewal.
Two new triggers for notification
When your firm is merging or being acquired
Once a deal reaches Heads of Terms stage, or the practical equivalent, the SRA wants to know. It is asking for notification roughly 30 days before completion wherever that’s achievable, along with specifics: turnover of both firms, the value of client money each holds, the areas of law they practise, how many acquisitions the buyer has made in the past 24 months, and how complex the resulting group structure will be.
The SRA is explicit that this is a notification, not an approval process. It isn’t asking for permission to merge. It’s building a real-time picture of who is buying whom, because a merger can change a firm’s risk profile fast, particularly where it gives access to large client account balances or creates governance structures that are harder to monitor.
The reasoning traces directly back to recent firm failures. The SRA’s own announcement names PM Law and Axiom Ince as the cases that reinforced the need for earlier visibility into mergers and acquisitions. Both involved firms whose risk profile shifted substantially before problems became visible to the regulator.
When your firm starts holding client money
If your firm told the SRA at authorisation, or at its last renewal, that it doesn’t hold client money, and that changes, you would have 28 days to notify the regulator. You’d need to confirm the date you started holding funds, the amount held at the point of notification, and that you’re operating a compliant client account under the Accounts Rules.
What happens if you miss the deadline
The SRA is proposing to use fixed financial penalties for late or incomplete notifications. This isn’t a new enforcement tool. The regulator already applies fixed penalties to breaches like missed diversity data submissions, which is exactly what caught out one London firm fined in June for ignoring a mandatory data request. The same mechanism would apply here: a defined administrative failure, a fixed penalty, with persistent non-compliance escalating to more serious enforcement under the SRA’s existing strategy.
For compliance officers, the practical point is that this wouldn’t need an SDT referral to bite. A missed 28-day window on its own could be enough.
What your firm should do before 17 August
- Read the two specific notification triggers in the consultation paper. This isn’t a general principle, it names exact events and exact timeframes.
- If a merger or acquisition is anywhere on your firm’s radar, decide now who owns the 30-day notification once Heads of Terms is signed, COLP, COFA, or a named partner.
- Check what your firm told the SRA at your last renewal about holding client money. If that position has changed or is about to, start preparing the notification now rather than waiting for the rule to land.
- Submit a response to the consultation if you want your firm’s circumstances reflected in the final rule. Fast-moving distressed sales and small sole-practitioner mergers are two scenarios the SRA has specifically asked for views on.
Frequently Asked Questions
What is the SRA’s new client money notification rule?
A proposed rule requiring firms to notify the SRA of specific “prescribed events.” The first two are mergers or acquisitions reaching Heads of Terms stage, and firms starting to hold client money for the first time.
When does the consultation close?
The SRA states the consultation closes at 9.00am on Monday 17 August 2026.
Does this affect firms that don’t hold client money?
The client money trigger only applies once a firm starts holding funds having previously told the SRA it doesn’t. But any firm considering a merger or acquisition falls under the first trigger regardless of whether it holds client money.
What happens if a firm misses the notification deadline?
The SRA is proposing fixed financial penalties for late or incomplete notifications in the first instance, with more serious enforcement reserved for firms that don’t comply repeatedly.
Will this rule take effect automatically?
No. It’s currently open for consultation. The SRA will need to finalise the rule, and in some cases secure Legal Services Board approval, before it takes effect.
This consultation looks narrow on its face, two notification triggers, but it signals where SRA supervision is heading: more real-time data, earlier engagement, and less patience for firms that change shape quietly. The two events covered here are unlikely to be the last. The SRA has already flagged that notifications around third-party litigation funding are coming next.