Breaches, records & reconciliations

Solicitors Accounts (FLK2) — SA.07: Breaches, Records & Reconciliations

Governed by the SRA Accounts Rules 2019 (in force 25 Nov 2019), made under the SRA's regulatory powers (framework: Legal Services Act 2007). These replaced the prescriptive 2011 rules with a shorter, principles-based set.

Records you must keep (Rule 8)

• A separate ledger account for each client (and each trust), showing all client-money receipts/payments and a running balance (Rule 8.1).
• A central record / listing of all client money held, kept up to date (Rule 8.1–8.2).
• Records of all bills and other notifications of costs (Rule 8.4).
• All accounting records must be retained for at least 6 years (Rule 8.4 / Rule 13 retention provisions) and be available on request to the SRA.

Reconciliations (Rule 8.3)

• At least every 5 weeks, you must obtain bank/building society statements and prepare a reconciliation comparing: (a) the cash book (client ledger total) balance, (b) the bank statement balance, and (c) the total of all client ledger balances. These must agree.
• The reconciliation must be signed off by the COFA or a manager of the firm, with any differences promptly investigated.

Breaches & corrections

• Correct promptly on discovery (Rule 6). A shortfall on client account must be replaced promptly from your own funds (Rule 6.1) — even if the loss was caused by a third party or bank error; fault is irrelevant.
• No set-off: a surplus on one client's ledger cannot cover a deficit on another's.
• The COFA (Compliance Officer for Finance and Administration) must keep a record of all breaches and report serious breaches to the SRA promptly (a materiality test).

Common traps for SQE1

• A material/serious breach is reported promptly; non-material breaches are recorded, not necessarily reported individually — but a pattern can become reportable.
• The reconciliation interval is 5 weeks, not monthly.
• Replacement of a client-account shortfall must be prompt/immediate — fault is irrelevant.
• An accountant's report is needed unless the exemption applies; the exemption requires client money held to be both an average of £10,000 or less and a maximum of £250,000 or less over the period (so a report is required if average > £10,000 or max > £250,000) (Rule 12.2). A qualified report must be delivered to the SRA within 6 months of the period end (Rule 12.1). Unqualified reports are kept by the firm, not auto-filed.
• Each client gets a separate ledger (Rule 8.1); running balances must never go into debit (overdrawn client ledger = breach).