The Solicitors Regulation Authority has won praise for its easing of rules that required regular financial reporting by firms. Research by chartered accountants and business advisory firm Hazlewoods found the number of qualified reports submitted by accountants to the SRA fell 28% in the past year.
Figures supplied by the regulator showed 1,387 reports were filed in 2017, down from 1,915 the previous year. In 2015, the figure reached 3,895.
In 2015, the SRA relaxed reporting requirements: mandatory requirements were removed and instead firms were told to report failings only where they were likely to have been intentional or where client money was put at risk. Firms are still required to obtain an accountant’s report within six months of their accounting period end date.
‘It’s encouraging that the SRA now has more time to follow up with firms to ensure that where a potential problem is flagged up, the issues are rectified,’ said Hazlewoods associate partner Andy Harris. ‘This sharp decline in overall problems is very positive news for the legal sector. Reports of breaches are falling as finance teams at law firms settle into the new regime, and as law firms take those reports that are submitted more seriously.’
Continuing breaches reported by firms are likely to be where a residual client balance exists after firms do not return leftover client money.
Non-compliant firms are also the ones acting as a bank for clients, including receiving and holding money, and making payments on their behalf, outside the originally agreed instructions.
The SRA had justified the change in rules partly on the basis that qualified reports picked up just on technical breaches which rarely caused detriment to clients. The regulator advocated change to give greater importance to the professional judgement of the reporting accountant in identifying significant risks.
But Hazlewoods said the new regime should not be seen as a soft touch, with recent examples of former firm partners fined £35,000 and £15,000 over payments made on behalf of a client.