The SRA is focussing on ‘principles’ and ‘professional judgement’ as opposed to ‘rules’ A principle based system is more uncertain than fixed rules and therefore it is more important to legal practices to have a set of recorded systems and controls in place that are applied consistently across the firm. The rules are clear particularly in relation to client money – rule 20.1, states that client money can only be withdrawn from the client account when … and there are 11 different events that can trigger an authorised withdrawal. However the new draft rule 5.1 that replaces rule 20.1 only sets out 3 ways that money can be withdrawn from the client account:-
(i) For the purpose for which it is being held
(ii) Following receipt of instructions from the client or third party for whom the money is being held
(iii) On the SRA’s prior written authorisation. While this approach removes a lot of regulation , it shifts the emphasis over to the professional judgment of the COFA (compliance officer for finance and administration)
The old rule 17.1(c) states that on receipt of money in full or part payment of a firm’s invoice, the entire amount must be paid into the client account. The rule clearly states that the money should then be transferred into the office account within 14 days. The new draft rule is 4.2 and states that money should be allocated promptly from mixed payments received to the ‘correct client or business account’. “Prompt” it has been suggested will simply mean “within 14 days”.
Although the brevity of the new draft rules are a welcome change, in the absence of specific definitive criteria as highlighted above, the opportunity for wide interpretation of the rules, when they come into force, is a minefield for the COFA to walk through.
