The SRA’s client money rules are set to change. Every firm holding client money would have to file an annual accountants’ report and a supporting declaration. The SRA sent the rule changes to the Legal Services Board on 2 June 2026. Approval is not guaranteed. A separate consultation on notification duties closes on 17 August 2026.
What is changing under the SRA client money rules?
The main change restores something the profession lost in 2014. Since then firms have only had to send the SRA a qualified accountant’s report. A clean report never reached the regulator at all.
Under the submitted rules, every firm holding client money files an annual report. Firms also complete a declaration alongside it. Where an exemption applies, the firm must state its exemption status rather than simply file nothing. Reporting accountants would submit reports direct.
Fixed financial penalties extend to late or missing submissions. That is the shift firms should register. A filing failure stops being a conversation with the SRA and becomes a set penalty.
The exemption thresholds themselves stay as they are.
Why did the SRA act?
A spot-check gave it the numbers. The SRA surveyed 596 firms. Of those, 25 non-exempt firms had not obtained an accountant’s report for their last reporting period. A further 31 filed late. That is roughly one firm in ten falling short of a long-standing rule.
The regulator also points to firm failures. Its June announcement and the follow-up consultation both name PM Law and Axiom Ince. Those cases exposed how little the SRA could see of risk building inside firms.
The Law Society backed the return of annual reports in its consultation response. It called annual accounts a key indicator of risk to client money. It also pressed the SRA on whether it has the resource to triage what will now arrive.
What about the COLP and COFA split?
A second set of rules travels with the reports. Some people can make significant decisions about how a firm is run on their own. Under the new rules they could no longer hold the compliance officer roles for legal practice and for finance and administration.
The rule applies to firms with turnover above £600,000. That captured 3,525 firms in 2024-25, close to 40% of the total. The SRA notes those firms hold the highest client money balances. They also account for the highest-value claims on the compensation fund.
A partial exemption applies to sole owner-manager firms, where the split is not practicable.
Firms relying on an accountants’ report exemption will have to say so formally rather than simply not filing. Late filing becomes a fixed penalty rather than a conversation. The SRA is also asking openly whether solicitors should hold client money at all in the longer term. That is the bigger question sitting behind the consultation.
What is the consultation closing on 17 August?
A separate exercise. It opened on 18 June 2026 as part of the Consumer Protection Review. It deals with stronger notification duties: what firms must tell the SRA, and when.
The regulator wants earlier sight of mergers, acquisitions and other changes to a firm’s profile. Its argument is that spotting patterns across the market would have flagged the recent failures sooner. It is also asking whether senior people should carry clearer personal responsibility for protecting client money.
A larger question sits behind both. The SRA’s draft 2026-27 business plan asks whether the current model of solicitors holding client money still gives the right protection for the long term. Compliance officers responding in August should read that as the real agenda.
When would this take effect?
Not before the Legal Services Board decides, and that is a genuine variable. The LSB refused to approve the SRA’s proposed complaints-handling rules in January 2026. Approval here cannot be assumed.
Commentators expect the client money reforms in place by early 2027 if the LSB clears them. Nothing is in force now. Firms should not be told otherwise.
The preparation is unglamorous. Confirm which reporting exemption the firm relies on, if any, and whether it can be evidenced. Check with the reporting accountant who would file, given the direct submission rule. Map ownership and management against the COLP and COFA restriction if turnover clears £600,000. Firms with September filing deadlines have the shortest runway.
The Legal Brief covered the SRA’s wider enforcement posture in its report on the FCA and SRA claims management review. It set out the reform programme these changes sit within in its King’s Speech 2026 round-up.
The SRA has published its announcement on strengthened client money safeguards, the notification requirements consultation, and the client money consultation papers.