Solicitors Accounts Rules

The Solicitors Accounts Rules 1998 (SARs) originally came into effect on 22 July 1998 and all solicitors were required to practice in accordance with them by 1 May 2000. They have been subject to ongoing amendment through the period since then and you must be very careful to ensure that in any matter the rules relevant at the particular time are those which are considered. They were amended most recently on 31 March 2009 as part of a general updating of the rules to introduce firm-based regulation and legal disciplinary practices as provided for in the Legal Services Act 2007. These amendments were relatively significant and will be dealt with below.

The statutory power for the SARs comes from sections 32, 33A, 34 and 37 of the Solicitors Act 1974, section 9 of the Administration of Justice Act 1985 and the Legal Services Act 2007. Specifically, section 32 of the Solicitors Act 1974 states:

32 Accounts rules and trust accounts rules

(1) The Council shall make rules, with the concurrence of the Master of the Rolls?

     (a) as to the opening and keeping by solicitors of accounts at banks or with building societies for clients? money; and

     (b) as to the keeping by solicitors of accounts containing particulars and information as to money received or held or paid by them for or on account of their clients; and

     (c) empowering the Council to take such action as may be necessary to enable them to ascertain whether or not the rules are being complied with;

and the rules may specify the location of the branches at which the accounts are to be kept.

The underlying principles of the rules are set out in Rule 1 which state that:

A solicitor must comply with the requirements of rule 1 of the Solicitors? Code of Conduct 2007, and in particular must:

     (a) keep other people’s money separate from money belonging to the solicitor or the practice;
     (b) keep other people’s money safely in a bank or building society account identifiable as a client account (except when the rules specifically provide otherwise);
     (c) use each client’s money for that client’s matters only;
     (d) use money held as trustee of a trust for the purposes of that trust only;
     (e) establish and maintain proper accounting systems, and proper internal controls over those systems, to ensure compliance with the rules;
     (f) keep proper accounting records to show accurately the position with regard to the money held for each client and trust;
     (g) account for interest on other people’s money in accordance with the rules;
     (h) co-operate with the SRA in checking compliance with the rules; and
     (i) deliver annual accountant’s reports as required by the rules.

The SARs are set out in full on the Solicitors Regulation Authority web site under the Code of Conduct section in the Solicitors part of the site. In addition there is a section entitled Solicitors’ Accounts Rules – assistance for accountants which attempts to answer the questions most frequently raised by reporting accountants, including the effect the Legal Services Act 2007 has had the SARs, the main consequences of the amendments made to the SARs and how to deal with the changes when completing an accountant’s report.