SRA consults on tougher rules to protect client money held by law firms

The Solicitors Regulation Authority (SRA) has launched a consultation on proposals to strengthen safeguards for client money held by law firms, following concerns about weaknesses in existing protections.

The proposals form part of the regulator’s wider review of consumer protection in the legal sector and focus on changes to rules governing accountants’ reports and the allocation of key compliance roles within firms. The consultation opens on 11 December and will run for 10 weeks.

The SRA said the proposals had been shaped by feedback from law firms, the public and other stakeholders, as well as by its own supervisory work. It said recent market issues and cases in which client money had been lost highlighted the need for further action.

Under the consultation, all firms would be required to submit an annual declaration confirming compliance with client money rules. The regulator is also proposing to require the submission of all accountants’ reports – whether qualified or unqualified – to improve oversight and data collection.

In addition, reporting accountants would be required to submit reports directly to the SRA, rather than via firms, and fixed financial penalties would be introduced for late or incomplete submissions. The SRA said a recent spot-check exercise had identified significant non-compliance with existing rules on accountants’ reports.

The consultation also proposes changes to compliance officer arrangements, aimed at reducing the risks posed when a single individual holds significant power within a firm while also occupying key regulatory roles. The SRA said such arrangements could undermine the checks and balances designed to protect client money.

Proposals in this area include the introduction of risk-based thresholds, exemptions for some sole practitioners and transitional periods to allow firms time to comply. The regulator said these measures had been refined following concerns from firms about cost and proportionality.

Aileen Armstrong, executive director for strategy, innovation and external affairs at the SRA, said: “We know that the vast majority of firms act responsibly. At the same time, we have seen issues in the market – as well as cases where client money has been lost – which highlight that we all need to take further action to strengthen the safeguards for clients and their money.”

The consultation closes at 12.00 on 20 February 2026. Following its conclusion, the SRA board will consider responses before deciding whether to proceed with rule changes, which would then require approval from the Legal Services Board.