The Solicitors Regulation Authority is set to remove the mandatory requirement that firms must submit an annual accountant’s report.
Instead, the regulator wants compliance officers to sign a declaration they are satisfied that the firm is managing client accounts in line with existing rules.
The proposal is part of a wider programme of reforms aimed at removing unnecessary burdens in regulation and injecting flexibility into financial management.
Every firm holding client money – around 9,000 in 2013 – has to have its client account audited annually, but there is a feeling that current requirements are unnecessarily costly to low-risk firms.
‘It is our view that the cost to firms of engaging a reporting accountant, followed by the cost to the SRA in processing all annual accounts, can no longer be justified by the risks identified through this exercise,’ said the SRA’s consultation paper on the plans.
‘The changes will enable the SRA to release resources and focus them on targeted regulation where we have concerns over a firm’s management of client money.’
The SRA plans to keep the right to require an accountant’s report where necessary as part of enforcement activity.
But the removal of a mandatory accountant’s report is expected to save each small firm around £800 a year and larger firms several thousand pounds.
The SRA estimates that processing, storing and ultimately destroying accountants’ report costs the organisation up to £200,000 a year.
But the regulator said it will continue to require firms to maintain ‘proper standards’ or compliance and management of client money.
Its consultation added: ‘With the removal of the requirement to submit annual accountant reports, we consider that it is appropriate for the firm’s COFA to declare that the firm’s accounts are compliant with the SRA accounts rules with effect from the date of implementation of these proposals.’
Peter Noyce, head of professional services at Menzies accountants, said the only potential negative of the plan is that, if the SRA has to resolve more client account problems, it may in time have to pass its costs on to lawyers through higher practising certificate charges.
He said: ‘There is no doubt that self-regulation is the cheapest way to oversee protection of client funds, and the SRA’s consultation paper is simply a natural extension of its outcomes-focused regulation.
‘However, there will be those who question the effectiveness of self-regulation over external regulation. The existing accountant’s report only provides an effective deterrent if you believe that (a) there are a lot of crooked lawyers stealing client funds and (b) that external auditors pick up on all irregularities.
‘I would hazard a guess that this point of view is more commonly held in the accounting profession than the legal profession.’
Responses must be submitted to the consultation by 18 June.