Strengthening trust: what the SRA’s Accounts Rules reforms mean for law firms

For many law firms, the management of client money has historically been viewed as a compliance requirement rather than a strategic risk area. However, increased regulatory scrutiny and a series of high-profile failures are shifting that position. 

The Solicitors Regulation Authority (SRA) has now set out proposed reforms aimed at strengthening how client money is protected. Subject to approval by the Legal Services Board (LSB), these changes are expected to come into force in early 2027 and signal a clear move towards greater oversight, earlier intervention and stronger governance. 

A response to a changing risk environment 

These proposals have been shaped by recent market events, including the collapse of firms such as PM Law and Axiom Ince, where significant sums of client money were lost. 

More broadly, the SRA is responding to a notable increase in regulatory pressure. In the six months to April 2026, it reviewed 8,955 reports of potential misconduct – a 58% rise compared to the same period two years earlier – placing considerable strain on its assessment and investigation processes, according to recent SRA data.

Against this backdrop, the SRA’s ongoing consultation – outlined in its draft 2026/27 business plan – raises a more fundamental question: whether the current model, in which firms routinely hold client money, remains fit for purpose. 

In practice, firms should expect increased scrutiny, even where historic compliance has been strong. The direction of travel is towards more proactive regulatory oversight, rather than reliance on retrospective reporting. Firms that view this purely as a compliance update risk underestimating the wider shift in regulatory expectations. 

AR1 reporting: a return to full transparency 

One of the most immediate changes relates to the submission of the annual accountants’ report (AR1). 

Under the proposed reforms, all firms holding client money will be required to submit their AR1 to the SRA, regardless of whether it is qualified. This represents a move back to a more comprehensive reporting framework, with a focus on consistency and visibility. 

Key implications include: 

In practice, this shift is likely to increase the level of scrutiny applied to all firms, not just those with reported issues. It also signals a move away from a system that primarily captures problems after they arise, towards one that enables earlier identification of risk. 

Separation of roles: strengthening governance and challenge 

The second key reform focuses on internal governance, specifically the separation of senior decision-making responsibilities from compliance roles. 

For higher-risk firms – those with turnover exceeding £600,000 or holding more than £2 million of client money – individuals with significant influence over how the firm is run will no longer be able to act as both: 

This change is intended to strengthen internal challenge and reduce the risk that conflicts of interest, or a lack of independent oversight, allow issues to go undetected. 

In practice, this represents a shift towards clearer accountability and more robust internal controls. Firms may need to review current role allocations and governance structures to ensure they can demonstrate appropriate separation and oversight. 

Recognising the practical constraints faced by smaller practices, the SRA has proposed a partial exemption for sole owner-managed firms where segregation of duties may not be feasible and the overall risk profile is lower. 

What this means for firms 

While the detail of implementation is still to be finalised, firms should begin assessing their position now rather than waiting for the formal start date. 

Key areas to consider include: 

For many firms, these changes will not require a fundamental overhaul. However, they will raise expectations around consistency, documentation and demonstrable control. 

Firms that rely on informal processes or historic arrangements may find the new requirements more challenging, particularly where responsibilities are currently concentrated among a small number of individuals. 

Looking ahead 

The SRA’s proposals reflect a broader shift towards reinforcing trust and transparency in the legal sector. Increased visibility, earlier detection of risk and stronger governance are central to that objective. 

For firms that are prepared, the changes should be manageable. However, early review and planning will be key to avoiding disruption and ensuring compliance frameworks remain fit for purpose as regulatory expectations evolve.