SRA set to strengthen client money safeguards – proposed changes to accountants’ reports explained
SRA proposals for annual accountants’ reports and COLP/COFA changes
In a recent announcement, the Solicitors Regulation Authority (SRA) confirmed its intention to impose several reforms aimed at strengthening the protection of client money, reducing consumer harm, and improving oversight within firms.
Why are changes to the accounts rules being proposed?
This follows a series of high-profile firm failures that exposed weaknesses in how some legal practices manage and account for client funds. It forms part of a wider programme set out in the SRA’s draft 2026/27 business plan, which questions whether the current model for firms holding client money continues to offer the right protections over the longer term.
For most firms, the proposed rules come down to two areas: the accountants’ reports regime and the separation of management and compliance roles in higher risk firms.
Annual accountants’ reports for all firms holding client money
Under the new rules, all firms that hold client money will be required to submit an annual accountant’s report to the SRA, together with key further information provided through a declaration. Where exemptions apply, firms will still need to provide information confirming their exemption status.
The change is designed to give the regulator a clearer picture of which firms should be obtaining reports, whether they are doing so, and whether those reports are being submitted on time.
New compliance requirements include fixed penalties which will be extended to cover late or non-submission. In other words, missing the deadline or failing to submit at all will carry a direct financial consequence. It would also be sensible to assume that if a firm fails to meet its reporting requirements, on time or at all, it may trigger further investigation by the SRA into its wider compliance controls and their application.
Separating a firm’s management and compliance roles
The second change applies to higher risk firms whose turnover exceeds £600,000 or who hold more than £2 million of client money. Under those circumstances, an individual who can make significant decisions about how a firm is run will no longer be permitted to also act as the Compliance Office for Legal Practice (COLP) and the Compliance Officer for Finance and Administration (COFA).
The SRA’s rationale is that separating these roles ensures that no single individual can both run a firm and oversee its compliance, including compliance with the client money rules. The SRA’s justification is that this reduces the risk that internal conflict or weak internal challenge will allow problems to go undetected and unreported.
There will be partial exemption for smaller sole owner-manager firms, where separating the roles is not practical and where the risk profile tends to differ from that of larger or more complex practices.
If your firm is likely to cross these thresholds, this change may mean reassigning the COLP and/or COFA roles and submitting an application to the SRA to update named individuals.
When will the changes take effect?
The SRA has submitted proposed rule changes in both areas to the Legal Services Board (LSB) for final approval. If approved, the regulator expects them to come into force by early next year.
That timeline may seem some way off, but the work involved in reviewing reporting arrangements, checking thresholds and, where relevant, restructuring compliance roles is best started well before any deadline.