Living the Eye Life! – November 2024
It’s pantomime season again. Oh yes, it is! As it is the season to be jolly, I will refrain from making any comments on the current political environment. I honestly don’t want to spoil your turkey dinner. But it did get me thinking about the kind of shows that are usually performed at this time of year. One of my favourites is A Christmas Carol, written as a novella and published by Charles Dickens in 1843. You all know the story and must be thinking how on earth is this possibly related to the Accounts Rules. Well sticking with the Christmas Carol theme, and with a bit of artistic licence, let’s just imagine what the ghost of Christmas past and present would have wanted to show us.
It’s never been clear as to what business Ebenezer Scrooge was employed in with Jacob Marley so just for fun, let’s assume it was a law firm called Scrooge and Marley. The book was published in the very same year that saw the introduction of the Solicitors Act 1843 – what a happy coincidence! Given that nothing had really preceded it, this was a significant piece of legislation. Its primary aim was to establish a more structured legal framework to govern the profession. It was designed to address the growing concerns about the need to protect the public from unqualified and unscrupulous practitioners.
Can you imagine the look on Bob Cratchit’s face when Ebenezer sidles over to him one afternoon, on Christmas Eve, and tells him that he now has another job to add to his ever growing to do list. “Bob – I would like you to be the firm’s COLP and COFA”. Well he wouldn’t have actually said that as that was another 170 years away, but you get the point. But the Act did deal with the introduction of certain minimum qualifications and a specified period of training before being allowed to practice.
It also gave the Law Society of England and Wales (founded in 1825) greater powers to regulate the profession and enforce ethical standards. The Law Society also gained the authority to investigate and take disciplinary action against solicitors who breached their professional conduct rules.
And there was one more objective of the Act, and that was to introduce enhanced regulatory oversight designed to offer greater protection of the public. In fact it established new rules to safeguard client money and trust funds, an early effort to ensure solicitors acted in a fiduciary capacity and in the best interests of their client. Doesn’t this all sound a little familiar?
Following the introduction of the 1843 Act, there were a few other notable Acts passed including the Solicitors Act 1932 and the Solicitors Act 1957 leading to the big one, the Solicitors Act 1974. Pre-1974, the earlier Acts, had already established fundamental principles about the need to separate client money from office money. Solicitors were already required to maintain clear records of client money and although the existing rules were less formalised than the 1974 rules, there were still expectations for proper accounting and audits to ensure compliance with the regulations. The previous rules also included detailed provisions regarding the payment of interest on client account and the requirement for client account reconciliations.
What do you think Scrooge would have made of all of this had the ghost of Christmas yet to come had shown him what the future held? I imagine he would have been grateful that he was getting close to retirement! And that’s before we wander into the realms of SRA Accounts Rules 2019. We all know that the move to the current Rules was driven by the desire for a simpler, more flexible approach that focussed on outcomes rather than processes. The new rules allow solicitors more discretion in how they manage client money, provided that they achieve the required outcome of safeguarding client funds. The current rules are shorter and less prescriptive, reflecting a more modern regulatory philosophy that emphasises professional judgement over rigid compliance.
So where will the regulator move to next? Given some of the high-profile failures of the past two years, it’s anybody’s guess. Will we return to the days of Scrooge and Marley pre the 1843 Act? That seems unlikely although I know of many in the profession who would welcome such a change. At the time of writing, I have yet to attend the SRA Compliance Officers Conference at the ICC. One of the breakout sessions is titled “Your Accounts Rules queries”. It will be interesting to hear not only the view of the SRA but also the views from the other delegates.
At the conference, I will no doubt be engaging with a number of modern-day Bob Cratchits. They will roll their eyes and say we have been here before. And given what has happened over the past 180 years you can understand why. New rules will be introduced, and we will all be required to change our procedures and update our policies. Can it ever be possible to eliminate the risk of client money being misused or stolen. It’s hard to see how unless solicitors are prevented from holding client money. In the meantime, I have my pantomime tickets ready but not for A Christmas Carol, I think that would be too much like being at work!
David Thorpe
Director – Financial Eye