SRA strengthens safeguards to protect client money and reduce consumer harm
Following consultation earlier this year, we are implementing reforms to strengthen protections around client money and ensure ongoing compliance within firms.
These steps form part of a wider programme of work outlined in our draft 2026/27 business plan, which recognises the need to consider if the current model for firms holding client money continues to provide the right protections in the long term. We are also considering whether senior individuals in firms should have clearer personal responsibility for protecting client money and managing risks.
While that broader work continues, we are progressing reforms designed to strengthen oversight and accountability, making the current system safer for consumers. The package includes:
- Improving compliance with, and visibility of, the accountants’ reports regime, helping identify risks to client money earlier and supporting action before problems escalate.
- Clarifying and strengthening compliance arrangements within firms, making sure individuals with control over, and power within, higher risk firms are subject to checks and balances.
These measures are designed to help spot emerging risks sooner and where necessary intervene earlier, helping to reduce the likelihood of harms arising from poor governance and controls within firms in the future.
Sarah Rapson, Chief Executive of the SRA, said: ‘Protecting client money is one of our most important responsibilities and developing our ability to proactively identify and address risk is a priority. That is why we are making changes that will help us identify risks earlier, strengthen accountability within firms, and reduce the likelihood of harm to consumers.
‘As we outlined in our draft business plan, we are taking a broader look at whether firms should continue to hold client money in the way they do today. In the meantime, these reforms are an important step to mitigate risks within the current framework. We must build a more flexible and responsive framework, if we are to act quickly where risks emerge.’
The changes in detail
Between December 2025 and February 2026, we consulted on a series of potential changes relating to firms’ obligations around accountants’ reports, and reinforcing the checks and balances provided by compliance officers. Following feedback received, we have submitted proposed rule changes in both areas to the Legal Services Board (LSB) for final approval.
Accountants’ reports
Under the new rules all law firms that hold client money will be required to submit annual accountants’ reports to the SRA and provide key further information through a declaration. Where exemptions apply, firms will be required to provide information on their exemption status.
Fixed financial penalties will be extended to address late or non-submission, encouraging timely compliance with these requirements. This will help drive compliance with this important independent audit provision and allow us to identify where this is not happening.
Separation of roles
Higher risk firms with a turnover of more than £600,000, or holding more than £2m of client money, will be required to make sure that individuals who can make significant decisions about how the firm is run, cannot also be the compliance officers for legal practice and finance and administration.
Separating these roles will make sure that no single individual can both run a firm and oversee its compliance, including with client money rules. This will reduce the risk that conflict, or weak internal challenge, will allow problems to go undetected and unreported.
There will be a partial exemption for smaller sole owner manager firms, where there are practical constraints to separating out roles and where the firms generally present different risk characteristics to larger or more complex practices.
Subject to approval by the LSB the new rules are expected to come into force by early next year.
Find out more about the closed consultation.
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