ACCA welcomes the opportunity to provide feedback on this “Further consultation on client money in legal services: Protecting the client money that solicitors hold”.  

We understand that the Solicitors Regulation Authority (“SRA”) undertook spot checks across 596 client money-holding firms and the data driven evidence showed that not all obligated client money-holding firms are complying with the requirement to obtain an accountant’s report and that some accountants reports were obtained late. Specifically, of the 596 client money-holding firms surveyed, 25 client money-holding firms that were not exempt had not obtained a report for their last accounting period, and 31 client money-holding firms obtained a report after the six-month deadline. This is a very concerning trend as lack of appropriate scrutiny poses a real risk to client money. ACCA welcome the proposals and commends the SRA for taking action to circumvent this behaviour. While previous relaxations in the regime were appropriate, we consider SRA actions proposed are reasonable and proportionate given the findings. 

Having reviewed the proposals a summary of our comments and observations is set out below: 

• Considering the non-compliance identified, ACCA support the re-introduction of the requirement for all accountant’s reports (qualified and unqualified) to be submitted to the SRA. Importantly, to be effective the resource implications for the SRA need to be considered. Additionally, standardising key reporting fields may ensure more effective analysis of reports received. The SRA should clarify the SRAs future plans for unqualified reports. Any extension of scrutiny to unqualified reports, in the future, needs to be weighed up against the inevitable costs.
• We agree with the proposals to introduce mandatory annual declarations from client money-holding firms and as noted in our previous response, Proportionate regulation: reporting accountant requirements, we believe this would focus the attention of the Compliance Officer for Finance and Administration (“COFA”) and client money-holding firm on their responsibilities for the protection of client monies.
• However, the proposed timing of the declarations proposed is unclear. Some suggestions, each timing dependant, include: 

1. requiring inclusion of reporting accountant’s details, including auditor registration number; and 
2. requiring declarations from the client money-holding firm, confirming all relevant information has been provided to the reporting accountant, acknowledging the client money-holding firm's responsibility to ensure the Solicitor Accounts Rules have been complied with and confirming compliance.

The auditor registration number could be used by the SRA to conduct eligibility checks by cross checking the details with the register of statutory auditors. 

• We disagree with requiring the reporting accountant to submit the accountant’s reports to the SRA. The requirement to submit must rest with the client money-holding firm. This however would not preclude the client money-holding firm from retaining an accountant to submit the report, on their behalf, on an agency basis. We therefore believe the current approach of submission by either the client money-holding firm or the accountant, on an agency basis, should be retained, ensuring the enforceability of the requirement remains robust i.e. the client money-holding firm required to submit the report is a client money-holding firm regulated by the SRA.
• However, we suggest, dual notification/dual reporting whereby reporting accountants are required to submit qualified reports the SRA upon reaching their opinion. This approach would be consistent with assurance-regime safeguards, where accountants/auditors may be expected to report directly to the regulator in higher-risk circumstances for example the regime applicable to UK charities whereby matters of material significance reportable to the UK charity regulators. If the SRA proceeds with direct submission, we recommend safeguards (including a mechanism for client money-holding firms to evidence timely instruction/provision of records, and clarity over how penalties will be applied in edge cases).
• We agree with the proposal to impose fixed financial penalties for failures to comply with the procedural and administrative requirements relating to the submission of reports and/or declarations on client money-holding firms.
• We agree that, where practicable, reporting accountants should obtain bank confirmations as independent evidence supporting completeness of the client account listing and balances reported upon. However, given persistent practical difficulties in obtaining confirmations, the guidance should be explicitly caveated with “where possible”.
• Our members continue to highlight that obtaining bank confirmations, particularly for these types of accounts, is increasingly difficult. Alternative approaches the reporting accountant may take should also be included in the guidance. The guidance should also clarify whether, and in what circumstances, failure to obtain a bank confirmation (despite reasonable attempts) or to conduct appropriate alternative procedures is expected to drive a qualification, to support consistency.
• Should the SRA wish to engage with banking regulators to highlight the importance of receipt of timely bank confirmations for these types of accounts, ACCA would be more than happy to assist.
• Further, ACCA would welcome discussion and engagement on any area in this consultation. 

To read our comments in full, please download the document found on this page.