Strengthened SRA safeguards: what law firms need to know about the new client money reforms

The Solicitors Regulation Authority (“SRA”) has announced a significant package of reforms aimed at strengthening the protection of client money and improving firms’ ongoing compliance with the SRA Accounts Rules. These changes follow a consultation held between December 2025 and February 2026 and form part of the SRA’s wider programme to modernise the regulatory framework around client money. 

For law firms, the message is clear: the SRA is increasing oversight, tightening accountability and expecting more robust internal governance. 

Key changes law firms must prepare for:

1. Mandatory annual Accountants’ Reports for all firms holding client money 

Under the previous regime, firms only had to deliver an annual Accountant’s Report (“AR1”) to the SRA if the report was qualified. Unqualified reports were kept on file and only submitted on request. Under the revised rules, any firm that holds client money must submit an AR1 to the SRA. Firms will also need to provide additional information through a formal declaration, including details where an exemption applies. 

The SRA will extend fixed financial penalties for late or non‑submission, signalling a firmer stance on timely compliance. 

What this means for firms: 

• Greater scrutiny of client account controls 
• Increased importance of maintaining accurate, timely records 
• Higher risk of financial penalties for administrative delays

2. Separation of roles in higher risk firms 

Firms with turnover above £600,000 or holding more than £2m of client money will be required to separate key management and compliance roles. Specifically, individuals with significant decision-making authority will no longer be permitted to also act as the Compliance Officer for Legal Practice (“COLP”) or Compliance Officer for Finance and Administration (“COFA”). 

This aims to ensure that no single individual can both run the firm and oversee its compliance, reducing the risk of conflicts of interest and improving internal challenge. 

A partial exemption will apply to smaller sole-owner practices where separation is not practical and risk profiles differ. 

What this means for firms: 

• Review of governance structures 
• Possible reallocation of COLP and COFA responsibilities 
• Strengthened internal checks and balances 

Why the SRA is making these changes 

The SRA has emphasised that protecting client money remains one of its most important responsibilities. The reforms are intended to identify risks earlier, improve visibility of compliance issues and encourage a more proactive compliance culture within firms. 

The SRA has also signalled that it is considering broader, long-term reforms to the way client money is held, suggesting that further changes may follow in future years. 

When will the new rules apply 

The proposed rule changes have been submitted to the Legal Services Board (“LSB”). Subject to approval, the new requirements are expected to come into force by early 2027. 

How we can help 

As specialists in SRA Accounts Rules reviews, we work closely with our  clients to ensure their systems, controls and reporting processes meet regulatory expectations. With these new requirements approaching, now is an ideal time to assess your firm’s readiness. 

We can support you with: 

• Independent reviews of client money controls 
• Preparation of mandatory accountants’ reports
• Governance and role separation planning 
• Ongoing compliance advice tailored to your risk profile 

If you would like to discuss how these changes may affect your firm, please get in touch.