Client money is the lifeblood of most law firms, and the SRA Accounts Rules are the framework that keeps it safe. Mishandling client money — whether through negligence, poor systems, or deliberate misappropriation — remains the single most common reason the SRA intervenes in a solicitor’s practice. Interventions are dramatic, traumatic, and expensive: the SRA can close a firm overnight, and the reputational damage rarely recovers.

The current SRA Accounts Rules came into force on 25 November 2019, replacing a more prescriptive predecessor. They are shorter and principles-based, but they impose obligations that are no less demanding — and the SRA’s enforcement approach has, if anything, become more vigorous since 2019.

This guide explains every significant aspect of the Rules, with practical guidance on how to comply.

The Core Principle: Client Money Is Not Firm Money

Before getting into the detail, it is worth restating the fundamental principle underlying the entire framework: money you hold for clients does not belong to the firm. You hold it as a trustee or agent. The moment you treat client money as though it were available to the firm — even temporarily, even with the intention of repaying it — you are in breach of the Rules, and potentially in breach of trust.

This is not a technicality. Every year, the SRA and the Solicitors Disciplinary Tribunal see cases where solicitors have used client funds to cover cashflow shortfalls, delayed paying disbursements, or retained costs they had not yet been entitled to draw. The consequences range from conditions on a practising certificate to strike-off and criminal prosecution.

What Is Client Money?

Rule 2.1 of the SRA Accounts Rules defines client money as money held or received by a firm on behalf of a client or third party. This is deliberately broad.

Client money includes:

Funds received on account of costs and disbursements not yet billed
Money received in settlement of litigation, pending distribution
Conveyancing completion monies received but not yet applied
Probate estate assets held pending administration
Money held under escrow arrangements

It does not include:

Costs already billed to the client and shown as a debt in the firm’s books
Mixed payments where the firm’s portion has been properly drawn off
Money paid to the firm as a fee for a specific service (not held on behalf of another)

The line between client money and office money can blur in practice, particularly around costs and disbursements. The SRA’s guidance on mixed payments and costs transfers is worth reading carefully if your firm handles high volumes of transactional work.

The Client Account

Opening and Maintaining a Client Account

Every authorised firm that holds client money must maintain at least one client account at an authorised institution (a bank or building society authorised by the PRA or FCA). The account must be designated as a client account — typically with “client” in the account title — so the institution understands that the money is held on behalf of third parties and that specific protections apply.

You must not pay client money into the firm’s office account, and you must not pay office money into the client account except in limited circumstances (such as paying bank charges to keep the account in credit).

Prompt Banking

Rule 2.3 requires that client money is paid into the client account promptly. The Rules do not define “promptly,” but the SRA’s longstanding interpretation is that money should be banked by the end of the next working day following receipt. Delays — even by a few days — can constitute a breach, particularly if they are habitual.

Pooled Client Accounts

Most firms maintain a single pooled client account holding money for all clients. This is permissible, provided the firm maintains accurate individual client ledgers that allow it to identify the balance held for each client at any time. The pooled account must never show a shortfall compared to the aggregate of individual ledger balances.

Separate Designated Accounts

For larger amounts or longer-term holdings — particularly in probate or property transactions — firms sometimes open separate designated accounts for individual clients. This offers greater protection for the client and simplifies the audit trail, but it also increases administrative complexity.

Record-Keeping Obligations

Client Ledgers

Rule 8.1 requires every firm to keep a ledger for each client and matter, recording every payment in and out. The ledger must show the date, the amount, and a description sufficient to identify the nature of each transaction. The aggregate of all client ledger balances must reconcile to the client account balance.

There is no prescribed format for client ledgers — they can be maintained on practice management software, spreadsheets, or even paper — but they must be accurate, up to date, and capable of producing a reconciliation.

Reconciliations

Rule 8.3 requires firms to carry out a three-way reconciliation at least every five weeks. The reconciliation checks that:

The balance on the client account (per the bank statement) equals
The aggregate of the client ledger balances (per the firm’s records), and
The list of individual matter balances reconciles to the ledger total

Firms that fail to reconcile regularly — or that reconcile without investigating differences — are at serious risk. Unreconciled differences are often the first sign of a problem, whether caused by error, fraud, or system failure.

Retention of Records

Rule 8.4 requires firms to retain client account records for at least six years from the date of the last transaction. This means electronic and paper records alike. The six-year period aligns with the standard limitation period for most civil claims.

Withdrawing Money from Client Account

Permitted Withdrawals

Money can only be withdrawn from the client account for the following purposes (Rule 5):

Payment to or on behalf of the client
Payment of disbursements on behalf of the client
Payment of the firm’s costs, once a bill has been delivered
Returning money to a client at their direction
Complying with a court order

Withdrawals for costs are only permitted once a bill (or other written notification of costs) has been sent to the client. You cannot draw costs simply because you believe you have earned them — you must first issue the bill.

Timing of Cost Transfers

A common source of compliance failures is the practice of transferring costs from client account before the bill has been delivered. Even a brief window between the transfer and the issuing of the bill is a technical breach. Good practice management software should make it impossible to post a costs transfer without a corresponding bill — if yours does not, the manual controls need to be robust.

Residual Client Balances

One of the most persistent compliance headaches is residual client balances — small amounts of client money left over after a matter has closed, which cannot easily be returned because the client cannot be located or the amount is too small to justify the administrative effort.

Rule 5.1(c) permits firms to retain small balances of £500 or less that would cost more to return than they are worth. For larger balances, firms must make reasonable efforts to contact the client and return the money. If those efforts fail, the balance must be paid to the SRA (which holds it in its Compensation Fund) — it cannot be paid into the firm’s office account.

The Reporting Accountant

Every firm that holds client money must have its client accounts examined annually by a reporting accountant — a qualified accountant who is independent of the firm. The accountant must prepare an Accountant’s Report confirming whether the firm has complied with the Accounts Rules during the period.

If the accountant identifies a breach, Rule 12.2 requires them to report it to the SRA unless the breach is trivial and has already been rectified. A qualified Accountant’s Report (one that identifies unremedied breaches) triggers SRA scrutiny and, potentially, a formal investigation.

Firms are sometimes tempted to manage the reporting accountant process as though it were a box-ticking exercise. This is a mistake. A well-qualified, genuinely independent accountant who examines your records thoroughly is a valuable safeguard against problems escalating undetected.

Interest on Client Money

Rule 7 requires firms to pay a fair and reasonable sum of interest on client money held for a period of time, unless the client agrees otherwise or the amount of interest that would be earned is negligible.

The obligation to pay interest is frequently overlooked by smaller firms. The SRA has issued guidance that firms must have a written interest policy and must apply it consistently. A policy of never paying interest on client funds held for any period is unlikely to satisfy the “fair and reasonable” standard — particularly at a time of elevated interest rates.

Specific Transaction Types

Conveyancing

Residential conveyancing generates the largest volumes of client money at the highest values. Completion monies — typically six-figure sums — flow through client accounts daily. Firms must ensure that:

Funds received before exchange are held to the client’s order and cannot be applied without authority
Completion monies are banked promptly (in practice, same-day banking is standard in conveyancing)
Redemption proceeds are remitted to lenders on the day of completion

The SRA’s 2023 thematic review of conveyancing found that a significant minority of firms were holding completion monies overnight without adequate justification.

Probate

Probate matters involve client money at several stages — estate assets collected, expenses paid, and distributions made. The complexity increases in larger estates with multiple beneficiaries. Firms should maintain separate ledgers for each estate and review balances regularly to ensure distributions are made promptly once administration is complete.

Litigation

In litigation, damages received in settlement must be held in the client account until the client has agreed and received a statement of account. Deducting costs before the client has confirmed the statement is a common breach in personal injury and clinical negligence practices.

Common Failures and How to Avoid Them

Delayed Banking

The failure to bank client money promptly is one of the most frequently cited technical breaches. Implementing a clear process for opening post, identifying client money, and ensuring same-day or next-day banking eliminates most instances of this failure.

Under-Funded Client Accounts

Firms that allow their client account to go into deficit — even momentarily — are in serious breach. This can happen through failure to check available balances before writing cheques or authorising transfers. Modern practice management software should prevent this, but manual checks remain important.

Failure to Reconcile

Five-weekly reconciliations are a minimum, not a target. Firms handling significant client money volumes should reconcile more frequently — weekly or even daily in a busy conveyancing practice. Differences should be investigated immediately, not carried forward.

Mixing Office and Client Money

Paying court fees or other disbursements from the office account and then reimbursing the firm by drawing from client account without a bill is a common error. Always check whether a disbursement has been billed before making the transfer.

Obiter integrates with your firm’s practice management to keep client account records accurate and up to date — automatically recording when money is received, flagging residual balances, and generating reminders when reconciliations are due. Fewer manual steps means fewer opportunities for the kind of administrative slippage that leads to Accounts Rules breaches. Explore Obiter at obiteros.com with a free 14-day trial.

SRA Accounts Rules: What Every Solicitor Needs to Know