In the wake of the General Data Protection Regulation (GDPR) and Making Tax Digital, law firms are now facing yet another wave of regulatory change. The Legal Services Board has approved changes proposed by the Solicitors Regulation Authority (SRA) under its ‘Looking to the Future’ programme. Included within the changes is a new set of accounting rules, which come into effect on 25th November 2019.
The new Standards and Regulations are much shorter and less prescriptive than the SRA’s previous Accounts Rules, with the intention being to reduce the burden on law firms and enable them to use their professional judgement in how they apply and maintain the required standards. There are a number of changes to the rules, which law firm managers and compliance officers will need to take into account in order for their firms not to breach the new Code. These new rules apply to all firms authorised or regulated by the SRA, including all those who manage or work within such firms.
Every firm should therefore familiarise themselves with the rules and review how the changes will affect their practice. This is likely to include the development of procedures and processes that fit the firm, as well as meeting the requirements of the SRA. As a result, firms will also have to consider their accounting software and take measures to ensure that they have the systems in place to fully support their staff and business once the new rules take effect.
There are a few essential steps that practice managers can take in order to achieve this:
Evaluate your accounting software needs
Every firm should begin the process with a complete evaluation of any new processes and procedures and establish whether their accounting software requirements have altered as a result. If this is the case, how are you going to bring your systems up to speed with the new regulations?
For example, the rules state that firms must keep and maintain accurate, contemporaneous, and chronological records using their accounting system to record in client ledgers identified by the client’s name and an appropriate description of the matter to which they relate. Therefore, having a clear understanding of the exact functions that staff will require to operate in line with these new rules will give managers a clear direction on what changes need to be made ahead of their introduction.
Review your current software early
The new rules do not offer an introductory period. All software checks must be conducted and completed by firms before the revised rules come into force. Practice managers must therefore carry out a full review of their firm’s current accounting systems as early as possible, assessing the full scope of client requirements and identifying any revisions or additional functions that your software will need to support. Doing so in good time will prevent any last minute concerns from compliance offers and allow firms to minimise the risk of a breach.
For example, the rules regarding payment of Interest to your clients stipulate that the payment to them must be “fair”, but also that you may, by agreement, come to a different arrangement with them. There are some older software systems which apply prescriptive rules – some even in line with the old Law Society limits and de minimis rules. For firms formulating and applying their own procedures in line with the “reasonableness” rule, you need your systems to be adaptable to you.
Take advantage of features which reduce the risk of a breach
One of the most noticeable changes is the removal of prescriptive timings and deadlines. For example, where firms may previously have been required to transfer monies within 14 days, or bank cheques within two days, these exact requirements have been removed. Of course, the obligation to act promptly and responsibly, particularly with regard to client monies, remains.
The new rules very much allow firms to determine their own timescales. Having accounting software which can simplify these transactions, provide task prompts and even send notifications when a particular action might breach the SRA rules will support a firm’s compliance efforts and help staff to stay on top of new any procedures.
Provide staff with necessary software training
As with every change in regulation, it is imperative that those practicing within the parameters of the SRA Account Rules are fully abreast of new processes and know exactly how they must operate in order to remain compliant. A significant part of this in a modern practice is using accounting software correctly and practice managers are responsible for ensuring that all relevant staff have the level of knowledge and training to work effectively, in accordance with the rules. Providing internal workshops will ensure that staff are fully briefed on the rules and give them time to adjust to any change in procedures across the firm.
Discuss compliance with your provider
There are a number of resources available to law firms that provide information on the new rules, including the SRA, the Law Society and, of course, the ILFM. However, when it comes to the compliance of software, firms should seek direct guidance from their chosen supplier, who should be a steady source of support on helping practice managers ensure the full compliance of their firm following the rule changes. Having the conversation early will also determine whether they are able to continue to fully support your business once the new rules take effect and prompt any necessary changes should your firm require further functionality or an alternative supplier.
To discuss this topic further or the services we can offer, please give us a call on 01252 518939, email us at info@insightlegal.co.uk or visit our website; www.insightlegal.co.uk
By Deborah Witkiss, Professional Services Director at Insight Legal