SRA Proposals for Annual Accountants’ Reports and COLP/COFA Changes
In an announcement published on 2nd June, the Solicitors Regulation Authority (SRA) confirmed its intention to impose several reforms aimed at strengthening the protection of client money, reducing consumer harm, and improving oversight within firms. The announcement, published on the SRA website and reported by the Law Society Gazette, follows the consultation that ran between December 2025 and February 2026.
There are two changes in particular that firms holding client money should be paying attention to and should be preparing for now, rather than waiting until the rules are confirmed.
Why Are Changes to the Accounts Rules Being Proposed?
The reforms form part of a wider programme set out in the SRA’s draft 2026/27 business plan, which questions whether the current model for firms holding client money continues to offer the right protections over the longer term. They also follow a series of high-profile firm failures that exposed weaknesses in how some legal practices manage and account for client funds.
The SRA’s stated aim is to spot emerging risks sooner and intervene earlier where necessary. 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.”
For most firms, the proposed rules come down to two areas: the accountants’ reports regime and the separation of management and compliance roles in higher risk firms.
Annual Accountants’ Reports for All Firms Holding Client Money
Under the new rules, all firms that hold client money will be required to submit an annual accountant’s report to the SRA, together with key further information provided through a declaration. Where exemptions apply, firms will still need to provide information confirming their exemption status.
This is a significant shift in a firm’s required obligations. Since 2014, firms have only been required to submit a report where it had been qualified by the reporting accountant for a mistake or area of concern. If the rule change comes into effect, reports must be submitted, whether they are qualified or not.
The change is designed to give the regulator a clearer picture of which firms should be obtaining reports, whether they are doing so, and whether those reports are being submitted on time.
To strengthen compliance of the new requirements, fixed penalties will be extended to cover late or non-submission. In other words, missing the deadline or failing to submit at all will carry a direct financial consequence. It would also be sensible to assume that if a firm fails to meet its reporting requirements, on time or at all, it may trigger further investigation by the SRA into its wider compliance controls and their application.
Separating a Firm’s Management and Compliance Roles
The second change applies to higher risk firms whose turnover exceeds £600,000 or who hold more than £2 million of client money. Under those circumstances, an individual who can make significant decisions about how a firm is run will no longer be permitted to also act as the Compliance Office for Legal Practice (COLP) and the Compliance Officer for Finance and Administration (COFA).
The SRA’s rationale behind this is relatively straightforward. In its view, separating these roles ensures that no single individual can both run a firm and oversee its compliance, including compliance with the client money rules. The SRA’s justification is that this reduces the risk that internal conflict or weak internal challenge will allow problems to go undetected and unreported.
There will be partial exemption for smaller sole owner-manager firms, where separating the roles is not practical and where the risk profile tends to differ from that of larger or more complex practices.
If your firm is likely to cross these thresholds, this change may mean reassigning the COLP and/or COFA roles and submitting an application to the SRA to update named individuals.
RACO can provide guidance on managing that changeover and can assist with the applications to implement these changes. For firms already on our SRA Compliance Essentials Service or our Risk & Compliance Management Service, our teams will work with you to support any necessary changeover should those rules come into effect.
When Will the Changes Take Effect?
The SRA has submitted proposed rule changes in both areas to the Legal Services Board (LSB) for final approval. If approved, the regulator expects them to come into force by early next year. That timeline may seem some way off, but the work involved in reviewing reporting arrangements, checking thresholds and, where relevant, restructuring compliance roles is best started well before any deadline.
Why Firms Should Review Their Accounts Manual Now
An office and accounts manual is the document that sets out how your firm complies with the SRA Accounts Rules. It records the procedures your team should follow, explains how to avoid breaches and sets out what to do when an issue arises. To remain useful, it must reflect how the firm actually operates day to day.
Changes of this kind are exactly the point at which an out-of-date manual becomes a liability. If your firm has not reviewed its accounts manual in a while or is unsure whether it fully reflects how your firm operates today, now is the time to ensure it is current and that the right policies, controls, and procedures (PCPs) are in place before any new rules take effect. A thorough review also gives you the chance to confirm that your reconciliation practices, reporting lines to the COFA, and exemption position are all in line with current and future requirements.
How RACO Can Help
We work with firms and their COLPs and COFAs to assist them with the management of risk, compliance, and regulation through a range of training and outsourced support solutions. Our goal is to ensure the firms we work with have and retain a compliant structure, enabling the firms, their managers, and owners to focus on running their businesses and serving their clients.
We also provide an Office and Accounts Manuals Drafting Service to ensure compliance with the Accounts Rules, which includes:
- Discovery – interviewing the COFA and Accounts team to understand, in detail, the processes adopted by the firm to enable the manual to reflect how the firm operates.
- Drafting – drafting the manual on the basis of the information provided in the discovery process.
- Review – Review and draft to perfect the manual to ensure it meets the requirements of the firm.
- Finalisation – Issue of the manual for roll out in the firm.
- Updates – An optional extra is to provide an update service whereby we will reflect any required changes due to rule of guidance change by the SRA. In addition, we will provide an annual review, which enables us to also reflect any changes in the business that need to be reflected in the manual.
Additional support is available that can include:
- Training of the staff involved in the processes and affected by them.
- Ongoing maintenance to ensure the manual is up to date and reflective of the changing needs of the firm.
- Implementation of a bespoke performance management programme.
- Implementing of an employee handbook.
Learn more: Office and Accounts Manuals Drafting Service.
For firms that have already had their manual drafted by RACO and are signed up to the update service, there is no need to take separate action on the manual itself. Once the new rules are clarified and confirmed by the LSB, we will apply the relevant updates as part of that ongoing service.
Alongside drafting, we provide specialist training programmes to make sure the people responsible for compliance, and those working within your financial processes, understand their obligations:
- Accounts Rules Training for Staff for fee earners and support staff who handle client money.
- The COLP Masterclass for those holding or preparing to hold the COLP role.
- The COFA Masterclass for those responsible for finance and administration compliance.
Training is particularly relevant where roles are changing. If a new individual is stepping into the COLP or COFA role to meet the separation requirement, the right preparation makes that transition far smoother.
Further Reading
For more on the Accounts Rules and the issues that continue to lead to enforcement action, see:
- SRA Accounts Rules in Focus: Mistakes That Are Still Catching Firms Out
- Residual Client Account Balances and Your Firm’s Regulatory Obligations
- Breach of SRA Accounts Rules: Firm Fined £18k Plus Costs
Reach Out to RACO
The reforms confirmed by the SRA give firms a clear prompt to check that their accounts manual, reporting arrangements and compliance structure are ready for what is coming. Getting that work done now, while there is time to do it properly, is far easier than reacting once the rules are in force.
For more information on the Regulation & Compliance Office and how we can assist in accelerating your risk management, compliance and regulation, call us on: 0203 985 8550 or email us at: info@regulationandcomplianceoffice.co.uk
