SRA Strengthens Safeguards to Protect Client Money
The Solicitors Regulation Authority (SRA) has announced a series of reforms designed to strengthen protections around client money and reduce the risk of consumer harm across the legal sector.
Following consultation earlier this year, the changes focus on improving oversight, accountability and the early identification of risk within law firms. The aim is to ensure that client funds are more effectively safeguarded and that potential issues are identified and addressed before they escalate.
Key changes
The reforms introduce several targeted measures, including:
- Enhanced reporting requirements – All firms that hold client money will be required to submit annual accountants’ reports and additional declarations, improving regulatory visibility and transparency. Currently, only firms with qualifying reports need to submit the annual accountants’ report.
- Stronger compliance arrangements – Internal controls within firms will be clarified and strengthened, ensuring appropriate checks and balances, particularly where decision-making power is concentrated.
- Earlier risk identification – Increased oversight and improved access to financial information will support earlier detection of potential issues and enable quicker intervention.
- Separation of roles – Higher risk firms with a turnover exceeding £600,000, or holding more than £2m of client money, will be required to ensure that the individuals who make significant decisions about the firm are not also the compliance officers for legal practice and finance administration (COLP and COFA). There is expected to be partial exemptions for smaller firms.
Together, these measures are intended to reduce the likelihood of problems arising from weak governance or ineffective financial controls.
What this means for law firms
For legal practices, the reforms signal a continued move towards greater scrutiny and accountability when handling client funds. Firms will need to ensure:
- Robust governance and internal control processes
- Timely and accurate financial reporting
- Clear allocation of compliance responsibilities
There is also an increased focus on adherence, with penalties expected for late or non-compliance with reporting requirements.
A broader review underway
Alongside these changes, the SRA is continuing to assess whether the current system—where firms hold client money—remains appropriate in the longer term.
Further details will follow once the Legal Services Board (LSB) has approved the final proposals.
How we can help
As regulatory expectations evolve, it is essential for law firms to stay ahead of compliance requirements. At Pierce, we support legal practices with specialist accounting and advisory services, helping to strengthen financial controls, improve reporting processes and maintain ongoing regulatory compliance.
