If you are a solicitor or Law Firm and handle client money, what impact has COVID 19 had on your responsibilities of handling of client money?
The SRA has been active in providing guidance to solicitors regarding the potential impact of COVID 19 on the adherence to the SAR.
They have stated that they appreciate that the current situation creates many practical difficulties for firms trying to act in their client’s best interests.
They have adopted a pragmatic and proportionate stance in their compliance approach. They have indicated that their focus will be on serious misconduct and they will be differentiating between those who have tried to do the right thing, and those who have not.
Here are some key points worthy of note:
SAR reporting deadlines
They expect solicitors and law firms to do everything they reasonably can to comply with the SAR and to keep clients’ money safe and separate from the firm’s own money. They still require certain firms to obtain an independent accountant’s report to confirm that these overarching objectives are met.
However, these are exceptional circumstances and the SRA will take a pragmatic and proportionate approach to any delay in preparation of an accountant’s report. If there are good reasons for a reporting accountant needing longer to prepare a report because of the impact of COVID 19 – which takes a firm outside of the six months window – the SRA would not take any subsequent disciplinary action.
If a firm has delayed obtaining their accountant’s report because of COVID 19, the SRA would not view that as a serious breach that needs to be reported to them by the COFA.
It is however advisable that firms, clearly document the reasons for any delays and the approach they and their reporting accountants have taken.
What does this practically mean in terms of getting a reporting accountant’s report completed?
The reporting accountant still needs to plan and take account of the circumstances. The current guidance is applicable and states:
- the reporting accountant need only undertake checks which they feel are proportionate and targeted to the size of firm and nature of the work the firm undertakes. This means that the accountant should reassess the amount and type of work they need to do.
In relation to where the work is conducted from, the SRA have no objection to original files being delivered to the reporting accountant for review or documents being scanned and stored digitally provided data protection legislation (e.g. as to the document’s encryption, storage and retention) is compiled with.
- Then SRA do not strictly define when reports must be qualified. They rely on the accountant’s professional judgement to assess the firm’s compliance with the SAR and whether money belonging to clients or third parties is at risk.
The SRA confirm that they would not expect a reporting accountant to qualify their report solely because they were delayed in finalising the report because of the impacts of COVID 19 and if there is no other reason for qualification.
Notwithstanding, the SRA expect the reporting accountant to comply with their statutory duties and report to the SRA immediately if they have any concerns about the theft of client money or dishonesty.
Specific client money control rules
Carrying out reconciliation statements at least every five weeks is a key part of making sure you are protecting clients’ money. They allow the firm’s managers to make sure that client money is safe. If there are any differences shown by the reconciliation, managers are under an obligation to promptly investigate and resolve any issues. Firms should therefore have contingency plans in place to make sure reconciliations are completed if, for instance, a key member of their accounts staff is unwell.
If your contingency plans fail because of the impact of COVID 19, the SRA would recommend that you take all necessary steps to assure yourself that client money is being dealt with by your firm properly. You should document your approach and all your decisions.
Restrictions in getting to the bank
The SAR set out that you should promptly pay client money into your firm’s client account. Prompt means prompt in all the circumstances. If you are delayed in paying in any cheques because of the impact of COVID 19 on your firm or your bank, the SRA would expect you to keep your client updated as to the position and document any decisions you make. The SRA will take all the circumstances into consideration if they were to receive any complaint and would be very unlikely to conclude that there has been a breach of our rules in this situation.
You may also want to look at other banking options so you can continue to effectively deal with your client’s money, such as requesting electronic payments where these are possible.
The Professional Practices team at Haslers are available to assist you over this challenging period. Do not hesitate to get in touch with your Haslers contact if you have any questions regarding this article or if you require assistance.
The impact of COVID19 on the handling on client money