News & Insights

The biggest shake-up of solicitors’ client money reporting in over a decade is now confirmed. The Legal Services Board has approved the Solicitors Regulation Authority’s reforms, and the first changes take effect in January 2027. If your firm holds client money, here is what you need to know and what to do before then.

Why the rules are changing

The collapse of Axiom Ince, and other recent firm failures where large sums of client money were lost, exposed gaps in how the SRA monitors firms. The SRA’s own spot checks found that some firms had never obtained an accountant’s report they were required to get, and others obtained theirs late. The SRA consulted on reforms between December 2025 and February 2026, applied to the LSB in June 2026, and received approval in August 2026.

Every accountant’s report must now go to the SRA

From April 2027, all accountants’ reports must be submitted to the SRA, whether qualified or not. Until now, only qualified reports had to be sent in; a firm with a clean report filed nothing, and nobody checked whether a report had been obtained at all.

The key points are:

• Deadline unchanged. Reports are still due within six months of the end of the accounting period.
• New annual declaration. Every firm holding client money must confirm to the SRA either that it is exempt (and why) or that it has instructed a reporting accountant. The SRA expects the COFA to make this declaration.
• Exemptions stay. Firms holding only Legal Aid Agency money, or with an average client balance of no more than £10,000 and a peak of no more than £250,000, still need no report, but must now declare that they are exempt.
• Fixed penalties. Late or incomplete submissions and declarations can now attract a fixed financial penalty on the firm, even though the accountant prepares the report.

The SRA had proposed that reporting accountants submit reports directly. That has been shelved for now, so responsibility for getting the report in on time stays with the firm. The LSB has, however, asked the SRA to keep working on direct submission, so it may well return.

Separating the people who run the firm from compliance

From January 2027, on a phased basis starting with the largest firms, anyone who can make significant management decisions on their own can no longer act as the firm’s COLP or COFA, if the firm has:

• annual turnover above £600,000, or
• held more than £2 million of client money at any point in the last reporting period.

Sole owner-manager firms caught only by the client money test can keep the COLP role but must appoint someone else as COFA. The SRA estimates around 1,660 firms and over 400 sole owner-managers may need to make changes. A one-off large transaction that is not typical of the firm’s business should not, on its own, bring a small firm into scope; the SRA is to publish guidance on this.

Firms affected can appoint a suitably senior colleague or contract an external compliance officer, provided that person has enough authority and access to do the job properly.

Other changes to the Accounts Rules

The SRA has also settled several points that have been under review since 2022:

• Transfers to office account (rule 2.1(d)). Money can move from client to office account only once a bill or written notification has been issued for costs actually incurred.
• Reimbursing expenses (rules 4.3 and 4.4). Firms will not need to issue a bill before reimbursing themselves for expenses paid on a client’s behalf, such as search fees.
• Client agreements (rule 2.3(c)). Firms can still agree different arrangements with a client’s informed consent, which protects fixed-fee work.
• Residual balances. There will be no fixed 12-week deadline, but the SRA expects money to be returned “promptly” and will publish guidance and examples. Firms should not treat this as a reprieve.
• Advance fees. No new limits on how much can be requested up front.

More change is on the way

These reforms are a first step. The LSB has criticised the SRA’s progress since Axiom Ince and is tightening its oversight, so stricter enforcement is likely. The SRA plans to consult on closer scrutiny of firms that merge, acquire or grow quickly, and it is still reviewing whether the current model of firms holding client money should continue. Separately, the Ministry of Justice has consulted on taking a large share of the interest earned on client accounts, which could hit the profits of many high-street firms.

What your firm should do now

1. Check your dates. Work out which accounting period will be the first caught by the April 2027 submission rules.
2. Confirm your exemption status. If you rely on an exemption, keep records of your average and peak client balances to support the declaration.
3. Agree who files. Confirm with your reporting accountant how and when the report will reach the SRA, and keep evidence that it did.
4. Test the thresholds. Compare your turnover and peak client money with £600,000 and £2 million, and plan any COLP or COFA changes early.
5. Tidy up client account. Review transfers to office account, clear old residual and suspense balances, and refresh your accounts procedures.

How we can help

At SilverThrone we help practices stay on the right side of the Accounts Rules. Whether you need an accountant’s report, a pre-report health check of your client account, or advice on what the new rules mean for your firm, get in touch for an initial conversation.

This article reflects the position as at October 2026 and is for general information only. It is not a substitute for advice on your firm’s circumstances.