SRA Accounts Rules for Law Firms: Client Money, Withdrawals and the Five-Week Reconciliation

Most writing about the SRA Accounts Rules is addressed to the reporting accountant. This is addressed to the firm — the people who hold the client money, authorise the payments and sign the reconciliations, and who carry the consequences when one of those goes wrong.

The rules in force are the SRA Accounts Rules in effect from 25 November 2019. A note on sourcing, because it matters: a draft set of Accounts Rules is also published on the SRA's site and is clearly marked as not made by the SRA Board. Several secondhand summaries circulating online are drawn from that draft. Everything below is from the rules actually in force.

What counts as client money

Rule 2.1 defines client money as money you hold or receive relating to regulated services delivered to a client; on behalf of a third party in relation to regulated services, such as money held as agent or stakeholder or to the sender's order; as a trustee or holder of a specified office or appointment; and — the limb firms most often overlook — in respect of your own fees and any unpaid disbursements, if held or received before you have delivered a bill for them.

That fourth limb is why money on account of costs is client money. Until the bill goes out, it is not yours.

The obligations, in the order they bite

• Rule 2.3 — client money is paid promptly into a client account, with three exceptions: specified-office money where paying it in would conflict with your duties, payments from the Legal Aid Agency for your costs, and an alternative arrangement agreed in writing with the client or third party
• Rule 2.4 — client money must be available on demand unless an alternative is agreed in writing
• Rule 2.5 — client money is returned promptly "as soon as there is no longer any proper reason to hold those funds". Note the trigger: the absence of a reason to hold it, not a request from the client
• Rule 3.1 — a client account may be kept only at a branch or head office of a bank or building society in England and Wales
• Rule 3.2 — the account name must include the name of the authorised body and the word "client"
• Rule 3.3 — you must not use a client account to provide banking facilities to clients or third parties
• Rule 4.1 — client money is kept separate from the firm's own money
• Rule 6.1 — breaches are corrected promptly upon discovery, and money improperly withheld or withdrawn is replaced immediately

The exception that applies to a lot of small firms

Rule 2.2 is a genuine carve-out and it is narrower than it is usually described. Where the only client money you hold falls within rule 2.1(d) — fees and unpaid disbursements before billing — and the disbursement money relates to costs or expenses you have incurred and are liable for, and you do not for any other reason maintain a client account, you need not hold that money in a client account, provided you have told the client in advance where and how it will be held.

Where it applies, rules 2.3, 2.4, 4.1, 7, 8.1(b) and (c) and 12 fall away for that money. But all three conditions must hold. A firm that maintains a client account for any other purpose cannot use this.

There is no general de minimis exception allowing client money to sit outside a client account. The £10,000 and £250,000 figures that circulate concern the accountant's report under rule 12.2, not whether you need a client account at all, and conflating the two is a common and expensive error.

Withdrawals: three limbs and a supervision duty

Rule 5.1 permits a withdrawal of client money only for the purpose for which it is being held; following receipt of instructions from the client or the third party for whom it is held; or on the SRA's prior written authorisation or in prescribed circumstances.

Rule 5.2 then adds a duty in six words that carries a great deal of weight: "You appropriately authorise and supervise all withdrawals made from a client account."

And rule 5.3 permits a withdrawal only if sufficient funds are held on behalf of that specific client or third party. Not sufficient funds in the client account as a whole — sufficient funds for that client. Inadvertent cross-firing between matters is a breach even where the account never goes overdrawn.

The rules do not say who may authorise a withdrawal. The SRA's guidance fills the gap: those permitted to authorise withdrawals should have "an appropriate understanding of the requirements of the Accounts Rules" and "sufficient seniority within the firm", and the guidance recommends nominated authorisers. That is guidance rather than rule, but it is the standard the SRA will apply when it looks at your controls.

Records, reconciliations and the five-week clock

Rule 8.1 requires accurate, contemporaneous and chronological records: client ledgers identified by client name and an appropriate description of the matter, splitting client money on the client side from non-client money and bills of costs on the business side; a list of all balances shown by the client ledger accounts with a running total; and a cash book showing a running total of all transactions through client accounts.

Then the two deadlines that structure the month:

• Rule 8.2 — obtain statements from banks, building societies and other financial institutions for all client and business accounts at least every five weeks
• Rule 8.3 — complete a reconciliation of the bank or building society statement balance with the cash book balance and the client ledger total at least every five weeks, "a record of which must be signed off by the COFA or a manager of the firm", and promptly investigate and resolve any differences

Five weeks, not monthly. A firm running a calendar-month cycle has no margin, and a reconciliation completed on the 36th day is late.

Rule 8.4 requires a readily accessible central record of all bills and other written notifications of costs. Rule 13.1 requires accounting records to be stored securely and retained for at least six years.

The accountant's report: obtained always, delivered rarely

This distinction is routinely misstated. Under rule 12.1, a firm that has at any time in an accounting period held or received client money, or operated a joint account or a client's own account as signatory, must:

• obtain an accountant's report for that period within six months of the period end; and
• deliver it to the SRA within six months only if it is qualified "to show a failure to comply with these rules, such that money belonging to clients or third parties is, or has been, or is likely to be placed, at risk"

So the delivery trigger is not qualification in the abstract. It is qualification coupled with risk to client money. The SRA's own guidance adds that it does "not consider it appropriate to strictly define when a report must be qualified", and lists among the serious factors a significant or unreplaced shortfall on client account, accounting records that are unavailable or significantly deficient, and reconciliations not carried out at all.

Rule 12.2 exempts a firm where all client money received in the period came from the Legal Aid Agency, or where the statement or passbook balance of client money did not exceed an average of £10,000 and a maximum of £250,000. Both limbs, not either.

Third-party managed accounts

Rule 11 permits a TPMA only if using it does not result in you receiving or holding the client's money, and you take reasonable steps before accepting instructions to ensure the client is informed of and understands the contract terms — including how any fees for the account will be paid and who bears them, and the client's right to terminate and to dispute payment requests. You must also obtain regular statements from the provider and ensure they accurately reflect all transactions.

What the rules do not say — and what follows

There is no training or competence requirement anywhere in the Accounts Rules. Nothing specifies who must be trained, on what, or how often.

What the rules do say is that the firm's managers are jointly and severally responsible for compliance (rule 1.2), that withdrawals must be appropriately authorised and supervised (rule 5.2), and — in the introduction to the rules — that "firms will need to have systems and controls in place to ensure compliance with these rules".

Read those three together and the training obligation is real but implied. A firm cannot evidence appropriate authorisation and supervision of withdrawals if the people authorising them cannot be shown to understand the rules, and the SRA's guidance states that expectation directly. In practice that means a dated record of who has been trained on client money, at what level, and when — which is the same evidential problem the profession faces under the SRA's continuing competence regime, now the subject of its own consultation on mandatory learning records.

Three things worth checking this week. Whether your nominated authorisers are documented as such, and trained. Whether your reconciliation cycle is genuinely inside five weeks rather than nominally monthly. And whether anyone in the firm believes the £10,000 figure means you do not need a client account.

If you are on the other side of this — the accountant preparing the report rather than the firm being reported on — our guide to the SRA Accounts Rules for accountants covers the reporting engagement. For structured development on client money and compliance obligations, see our CPD programmes.

Sources and limits: written from the SRA Accounts Rules in effect from 25 November 2019 and the SRA's guidance on planning and completing an accountant's report and on accurate client accounting records, read in October 2026. The SRA's draft Accounts Rules, which are marked as not made by the SRA Board, were deliberately not used. Rule 7 (payment of interest), Rules 9 and 10 and the prescribed report form are not covered here. This is general information about published rules, not legal or accounting advice.