Thirteen rules, in force since 25 November 2019, and most of the trouble firms get into comes from four of them. This is what each one requires of the person running the firm, rather than of a regulator reading it back.
Guide · Updated August 2026
Do you hold client money? Nearly every obligation in the SRA Accounts Rules hangs off that one answer, and the answer is defined for you rather than left to judgement. Get it right and the rest of the rules fall into a sensible order. Get it wrong and you are either running a client account you do not need, or holding money you have no permission to hold.
The rules were made by the SRA Board and have been in force since 25 November 2019. They are short — thirteen numbered rules across four parts — and deliberately outcome based, which is why they read as though a great deal is left to you. It is. The SRA regulates law firms in England and Wales only; firms in Scotland and Northern Ireland answer to their own Law Societies and to completely different accounts rules.
Rule 2.1 defines client money as money held or received by you:
Limb (d) is the one that surprises people. Money on account of costs is client money until the bill exists. That single fact is what rule 4.3 turns on, and rule 4.3 is the most commonly breached rule in practice.
If the only client money your firm handles is 2.1(d) money — your fees and unpaid disbursements — and any money held for disbursements relates to costs for which the firm is itself liable, and you do not otherwise maintain a client account, then you do not have to hold that money in a client account, provided you tell the client in advance where and how it will be held. Rules 2.3, 2.4, 4.1, 7, 8.1(b) and (c), and rule 12 then do not apply to that money.
That last clause is the reason a growing number of firms have restructured. No client account means no Accountant's Report obligation for that money at all. It is not available to every firm — conveyancing, probate distributions, personal injury damages and stakeholder money all put you straight back into a client account — but for a litigation or advisory practice billing in advance it is worth genuinely costing out. Our Accountant's Report guide explains what falls away if you get there.
Rule 2.3 requires client money to be paid promptly into a client account, with three exceptions: where it would conflict with your duties as a trustee or office holder, where it is Legal Aid Agency money for your costs, or where you have agreed an alternative arrangement in writing with the client or third party. Rule 2.4 requires the money to be available on demand unless otherwise agreed in writing. Rule 2.5 requires client money to be returned promptly to the client or third party as soon as there is no longer any proper reason to hold it — the rule that governs residual balances.
Rule 3.3 is the one that ends careers. The test is not whether the money is genuinely the client's, or whether you were being helpful. It is whether the movement relates to regulated services you are delivering. Holding sale proceeds while a client decides where to invest them, paying a client's personal bills out of a matter balance, or letting a balance sit after the matter concluded because the client asked you to, are all rule 3.3 problems regardless of good intentions.
Rule 4.1 requires client money to be kept separate from money belonging to the authorised body. Rule 4.2 requires mixed payments to be allocated promptly to the correct client or business account. Rule 4.3 is the most breached rule in the book: before transferring client money to pay your own costs you must first give a bill or other written notification of costs, and the transfer must be for the specific sum identified in that bill and covered by the money held for that particular client.
Three conditions, and firms routinely satisfy one or two. None of the failures below involves dishonesty, and all of them are breaches.
A round-sum transfer of "about what we have earned" fails, because no bill identifies that specific sum. A transfer raised on the day the bill is dated but not delivered to the client until a week later fails on sequence, because the bill has to come first. And a transfer of £4,000 against a bill for £3,600, on a matter holding £5,000, fails on amount: the money held covers it, but the bill does not — £400 of client money has moved to office with nothing behind it. Figures are illustrative.
Rule 5.1 permits withdrawal of client money only for the purpose for which it is held, on the client's or third party's instructions, or on the SRA's prior written authorisation or in the prescribed circumstances. Rule 5.2 requires withdrawals to be appropriately authorised and supervised. Rule 5.3 is the absolute one: you may only withdraw if sufficient funds are held for that specific client or third party.
Rule 5.3 outlaws cross-client funding. A client account that is healthy in total but overdrawn on one matter ledger is in breach, and the fact that the aggregate balance is fine is not a defence — it is precisely the condition rule 5.3 exists to catch. It is also exactly what a three-way reconciliation is designed to reveal.
Rule 6.1 requires you to correct any breach promptly upon discovery, and any money improperly withheld or withdrawn from a client account must be immediately paid in or replaced as appropriate. Two different standards in one sentence, and the second is the stricter. Replacing a shortfall is not a month-end adjustment.
You must account to clients for a fair sum of interest on client money held, and you may agree a different arrangement in writing provided the client has been given sufficient information to give informed consent. There is no prescribed rate and no de minimis in the rule itself — the policy is yours to set, to publish, and to be able to justify. Firms that adopted a policy years ago and never revisited it as base rates moved are the ones that struggle to call the sum fair.
Rule 8.3 is three figures, not two, and a reporting accountant tests each of the five obligations inside it separately — the interval, the coverage, the three figures, the sign-off and the resolution of differences. We have given it a guide of its own because the detail is where firms come unstuck.
All accounting records must be stored securely and retained for at least six years. That covers the ledgers, the cash book, the reconciliations, the bank statements and the central record of bills. It is also the retention period for the tracing records behind any residual balance paid away to charity.
Firms describe the breaches register as an Accounts Rules requirement. It is not one, and citing a rule number for it is a factual error a reporting accountant will notice. The 2011 rules had one; the 2019 rules do not.
The obligation is real, but it is built from two other places. First, the SRA Code of Conduct for Firms, paragraph 2.2: you keep and maintain records to demonstrate compliance with your obligations under the SRA's regulatory arrangements. Second, the SRA's guidance on the Responsibilities of COLPs and COFAs, published 25 November 2019, which says the SRA expects compliance officers to keep a record of all breaches that occur, while not prescribing a method of recording them.
"A breaches register is an SRA expectation grounded in paragraph 2.2 of the Code of Conduct for Firms and in the SRA's COLP and COFA guidance, not a numbered Accounts Rule." Everything that follows from it — record every breach, however small, with what happened, when it was found, what was done and when — is unchanged. What changes is that you can defend the register's basis if you are ever asked where it comes from.
Note also the terminology. The material and non-material breach language died with the 2011 rules. The current test throughout the Standards and Regulations is a serious breach, and that is the word to use. Our COFA guide covers what has to be reported, by whom, and how quickly.
If you do nothing else after reading this, work through these in order. They account for most of what goes wrong:
We keep the client account records the rules describe, tie the reconciliation three ways every month, evidence every office transfer against its bill, and give your COFA a record they can hand to anyone. If you want a structured look at where the firm stands, the free client account health check walks through twelve points and returns a red, amber or green picture. It is information, not advice. Our COFA support service is where it becomes ongoing help.
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Rule 2.1 defines it in four limbs. Money relating to regulated services you deliver to a client; money held on behalf of a third party in relation to those services, including money held as agent, as stakeholder or to the sender's order; money held as a trustee or as the holder of a specified office or appointment, such as an attorney, a Court of Protection deputy or a pension scheme trustee; and money in respect of your own fees and unpaid disbursements if you hold or receive it before delivering a bill for them. That fourth limb catches money on account of costs, which stays client money until the bill exists, and it is what rule 4.3 turns on — the most commonly breached rule in practice.
Some can. Rule 2.2 says that if the only client money you handle is money for your own fees and unpaid disbursements, any money held for disbursements relates to costs the firm is itself liable for, and you do not otherwise maintain a client account, you need not hold that money in a client account — provided you tell the client in advance where and how it will be held. Rules 2.3, 2.4, 4.1, 7, 8.1(b) and (c) and, importantly, rule 12 then do not apply to that money, so the Accountant's Report obligation falls away with it. It does not work for conveyancing, probate distributions, damages or stakeholder money, all of which put you back into a client account immediately.
Rule 3.3 says you must not use a client account to provide banking facilities to clients or third parties, and that payments into, and transfers or withdrawals from, a client account must be in respect of the delivery by you of regulated services. The test is not whether the money genuinely belongs to the client or whether you were being helpful. It is whether the movement relates to regulated services you are actually delivering. Holding sale proceeds while a client decides what to do with them, settling a client's personal bills from a matter balance, or leaving funds in place after the matter has concluded because the client asked you to are all rule 3.3 problems, and the SRA treats them seriously.
Not as a numbered rule, and citing one is a mistake a reporting accountant will spot. The 2011 rules contained a breaches register requirement; the 2019 rules, in force since 25 November 2019, do not. The obligation is built from paragraph 2.2 of the SRA Code of Conduct for Firms, which requires you to keep and maintain records demonstrating compliance with your obligations under the SRA's regulatory arrangements, and from the SRA's guidance on the responsibilities of COLPs and COFAs, which says the SRA expects compliance officers to keep a record of all breaches while not prescribing a method. So keep the register, and describe its authority correctly.
At least six years. Rule 13 requires all accounting records to be stored securely and retained for a minimum of six years, and that covers the client ledgers, the list of client ledger balances, the cash book, every five-weekly reconciliation and its sign-off, the bank and building society statements obtained under rule 8.2, and the central record of bills and other written notifications of costs required by rule 8.4. The same six-year period applies to the record of the steps you took to trace the owner of any residual balance you have paid away to charity. Reporting accountants routinely sample older periods, so a well-organised archive saves time on the engagement.
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