Law firms are improving their approach to handling client money, as the number of qualified accountant’s reports relating to breaches submitted to the Solicitors Regulation Authority (SRA) fell by 28% last year, according to analysis by Hazlewoods
The firm, which specialises in the legal profession, says there were 1,387 qualified financial reports in 2017, down from 1,915 in 2016.
According to its analysis, the primary drivers behind the remaining breaches include law firms maintaining residual client balances, where they do not return leftover client money once all work has stopped. Other issues arise where firms are acting as a bank for clients, including receiving and holding money, and making payments on their behalf, outside of the originally agreed instructions.
Andy Harris, associate partner in Hazlewoods’ legal team, said: ‘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.’
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.
Hazlewoods says there is now evidence that 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.
Harris said: ‘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.
‘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.’
Report by Pat Sweet
