How residual balance changes will affect your law firm

How residual balance changes will affect your law firm

From October 2014, residual client balances of £500 or less can be dealt with by firms without authorisation from the Solicitors Regulation Authority (SRA), as announced in guidance published by the regulator. The guidance has been issued in response to an ethics question which asked the regulator to clarify whether authorisation is required to withdraw money from a client account in order to pay it to a charity.

What are the changes?

Since 2008, where a residual balance on a single ledger was less than £50 it has been possible to pay such funds to a charity without requiring permission from the SRA, as prescribed by Rule 20.2. However, for individual residual balances greater than £50 an application for authorisation to make such a transfer has to be made to the SRA.

Changes to the SRA Accounts Rules in October 2014 mean the de minimis amount requiring SRA authorisation prior to a transfer will increase from £50 to £500. Firms will now be able to transfer sums out of their client account, including individual balances of up to £500, without first requiring authority from the SRA in order to do so.

What has prompted the change?

The SRA has embarked on a number of initiatives promoted as cutting red tape and easing the regulatory burden upon the profession. The SRA's risk-based approach to regulation means it will only actively regulate matters where it feels there is a real and tangible risk that can be mitigated through proportionate and necessary rules.

By happy coincidence for the SRA, the increase in the amount solicitors may transfer without the need for prior permission is anticipated to reduce the number of such applications (and the corresponding administrative burden for the regulator) significantly. A consultation paper released by the SRA in April 2014 showed a steady increase in the number of applications for authorisation under r 20.1(k). In 2013 there were over 1,100 such applications. The real number of requests is in all likelihood

Related Articles:
Latest Articles:

Access this article and thousands of others like it free by subscribing to our blog.

Read full article

Already a subscriber? Login

About the author: