You would be forgiven for thinking that SRA fines are limited to AML breaches these days. But a recent case shows why client account compliance is equally important.

The SRA’s £160,000 fine against Taylor Rose Limited lands at a time when the regulator is already consulting on how better to protect client money, strengthen accountants’ reports, and improve the checks and balances around firms that hold client funds.

In that wider context we can see that the SRA is not looking at client account compliance as a narrow bookkeeping issue. It is looking at it as part of a broader consumer protection problem.

The regulator is concerned about the risk of client money being stolen, lost, misused or simply unavailable when needed. It has also said that the number and size of interventions rose sharply in 2022/23, and that a substantial proportion of the regulatory breaches it investigates concern the handling of client money.

Against that background, the Taylor Rose decision is a useful reminder of where the SRA’s attention is likely to fall next: reconciliations, residual balances, reporting decisions, COFA oversight, accountants’ reports and the systems that sit behind them.

That is until they get their way and ban client accounts altogether, but that’s a different story. 

What happened?

The SRA began a forensic investigation into Taylor Rose in August 2023. The background appears to be important. According to reports, the issues predominantly stemmed from cases taken on through acquisitions of other firms between 2018 and 2020. That does not remove the firm’s regulatory responsibility, but it does explain why this type of issue can arise in practice: acquisitions can bring over legacy files, historic balances, inconsistent records and client account problems that need active post-completion control.

The SRA’s investigation found that the firm’s main client bank account had not been fully reconciled every five weeks. The reconciliation completed on 31 July 2023 contained a significant number of unreconciled items. Those items had increased every month since April 2022 and had been carried over into later months. The firm entered into a compliance plan with the SRA and met the targets to bring its accounts into compliance in August 2025.

The findings were grouped into three broad areas.

First, the firm failed to have effective systems and controls to ensure compliance with the SRA’s regulatory requirements.

Secondly, the firm failed promptly to report possible breaches of rules to the SRA.

Thirdly, the firm failed promptly to return client money to clients.

This was not a single error in one reconciliation. Nor was it entirely a post-acquisition legacy issue. The SRA’s concern was about unresolved items being carried forward, systems and controls not working effectively over a long period, possible breaches not being reported promptly, and client money not being returned promptly.

That is a practical warning for any firm growing by acquisition. Client account integration is a regulatory risk area in its own right.

Why was this a Band A fine?

One point that firms should not miss is that the SRA categorised the conduct as Band A. That is the lowest conduct band under the SRA’s financial penalties guidance.

For firms, Band A usually produces a financial penalty of 0.2% to 0.3% of annual domestic turnover. The SRA’s guidance explains that the penalty band is reached by assessing the nature of the conduct and the impact, or potential impact, of the harm. A Band A outcome indicates the lowest overall seriousness score within that framework. 

That does not mean the conduct was trivial. It plainly was not. The SRA expressly said a financial penalty was appropriate because the conduct related to failures in the firm’s systems and controls, and because the conduct continued longer than was reasonable. 

But the Band A classification is still instructive. It suggests the SRA did not treat this as a serious case of dishonesty, intentional misuse of client money, or actual client loss of the type that would push the matter into a higher harm category. The risk of harm was more regulatory: if a firm cannot fully reconcile its client account, allows unreconciled items to grow, delays reporting possible serious breaches and leaves residual balances unresolved, it weakens the safeguards that are meant to protect client money.

That is exactly the sort of risk the SRA is now trying to get ahead of.

So the lesson is slightly uncomfortable. Even where the SRA places conduct in the lowest band, a large firm can still receive a very significant fine. That is because the SRA’s fining approach for firms is turnover-based. Taylor Rose was also a licensed body (aka an alternative business structure, or ABS), and the SRA’s statutory fining powers for licensed bodies are much higher than for traditional law firms. 

The Taylor Rose fine was reduced by 30% to reflect the firm’s cooperation, admissions and remedial action. 

The broader SRA direction of travel

The Taylor Rose decision should be read alongside the SRA’s wider client money work.

In December 2025, the SRA published a further consultation on protecting the client money that solicitors hold. That consultation followed the November 2024 consultation on safeguarding client money and redress. The newer consultation focused on two immediate areas: improvements to the accountants’ reports regime and strengthening the checks and balances provided by compliance officers.

The SRA said the accountants’ reports regime is intended to provide independent scrutiny of firms’ compliance with the Accounts Rules, particularly around systems and controls for client money. It also said it was concerned that it did not have access to key information to monitor compliance effectively, including whether firms were obtaining accountants’ reports when required and whether qualified reports were being submitted. 

The spot-check data is worth noting. Of 596 firms surveyed, 25 non-exempt firms had not obtained an accountant’s report for their last accounting period, and a further 31 were late in obtaining one. The SRA described this as a concerning level of non-compliance and potentially a lack of understanding of the requirements. 

The direction of travel is therefore clear. Client money is seen as a core regulatory risk. The SRA wants more visibility over firms that operate client accounts. It wants better assurance that accountants’ reports are being obtained. It wants stronger compliance officer oversight. It is also looking at firms whose risk profile changes, including through growth, mergers and other structural changes.

The Taylor Rose fine fits neatly into that picture.

A reconciliation is not the end of the process

The most practical lesson from the decision is that a reconciliation is not simply a document to produce every five weeks.

The question is whether the reconciliation is meaningful. Are differences investigated? Are unreconciled items aged? Are they explained? Are they escalated? Is there evidence that the COFA, finance team and management have understood the risk and acted on it?

A firm can technically complete a reconciliation and still have a serious regulatory problem if unresolved items are simply carried forward month after month. At that point, the issue is no longer just financial administration. It becomes a systems and controls issue.

For COFAs, this is a particularly important point. The COFA does not personally need to do the cashiering. But the COFA does need enough visibility, authority and support to know whether the system is working. If the finance function is telling the board that reconciliations are done for the month, the next question should be: what do they show?

Residual balances need active ownership

The residual balances finding is equally important.

The SRA found that Taylor Rose failed promptly to return client money to clients over a prolonged period. Residual balances are often treated as an administrative nuisance. They should not be. The SRA’s November 2024 client money consultation specifically referred to examples from its inspections and investigations of firms not returning client money promptly at the end of a case, leading to high residual balances. 

Most firms holding client money will have some residual balances. That is not automatically misconduct. The risk arises when there is no live process for dealing with them.

A sensible residual balances process should include:

1. clear ownership, usually involving both finance and matter owners;
2. regular aged balance reporting;
3. documented attempts to return funds;
4. escalation where fee earners do not respond;
5. use of the SRA’s prescribed routes where clients cannot be traced;
6. management oversight of stubborn or high-value balances.

If the SRA asks why money is still sitting in client account, the firm needs to be able to show the answer from the file and ledger history.

Reporting decisions must be recorded

The delayed reporting finding is also worth pausing on. Not every accounts rules breach is reportable to the SRA. Firms are entitled to exercise judgement. But that judgement needs to be active, informed and recorded.

Where an issue affects client money, is recurring, increases month by month, involves significant unreconciled items, or points to a wider systems failure, firms should be asking themselves whether the SRA needs to be told.

One common weakness is not necessarily that the firm reaches the wrong reporting decision. It is that nobody can later show that a reporting decision was made at all.

How firms should respond

The Taylor Rose decision does not mean every firm needs to panic. It does mean firms should be more curious about whether their client account controls are genuinely working.

A good starting point would be to ask the following questions:

• Are our five-weekly reconciliations fully completed, reviewed and signed off?
• Do we know how many unreconciled items are being carried forward each month?
• Are unreconciled items increasing, reducing or staying the same?
• Do we have a live residual balances process?
• Does the COFA receive enough information to challenge the finance position?
• Have we documented decisions about whether issues are reportable?
• Do we know whether our latest accountant’s report was obtained on time and whether it was qualified?
• Would we be comfortable showing our client account governance trail to the SRA?

If the answer to any of those questions is uncertain, the firm should not wait for the next accountant’s report or an SRA enquiry.

This is where an external client account health check can be useful. Our client account health checks are designed to give firms a practical, independent sense check of their controls before problems become regulatory issues. That can include reviewing reconciliation processes, residual balance controls, breach reporting, COFA oversight, matter-level risks, finance team escalation and management information.

It is not about replacing the reporting accountant. It is about helping the firm understand whether the day-to-day control environment is working in practice.

The link with SRA investigations and enforcement

This decision also links closely to themes we covered in our recent webinar on SRA investigations and enforcement – the write up is here.

When the SRA investigates, it is rarely looking only at the original error. It will also want to understand what the firm knew, when it knew it, who was told, what action was taken, whether the matter was escalated, and whether the firm considered reporting obligations.

That is why firms should be building investigation-ready evidence as part of ordinary compliance management. Not because they expect to be investigated, but because good records are part of good governance.

The firms best placed to deal with SRA scrutiny are usually those that can show:

• they identified the issue;
• they understood the risk;
• they escalated it appropriately;
• they took proportionate remedial action;
• they considered whether it was reportable;
• they learned from it.

That is a much stronger position than trying to reconstruct the story two years later.

Final thought

The Taylor Rose fine is significant, but not because it suggests the SRA treated the case as the most serious type of client money misconduct. It did not. It placed the conduct in Band A.

The significance lies elsewhere. A Band A systems and controls case still produced a sizeable fine. The failings related to reconciliations, residual balances and reporting, which are precisely the areas now sitting within the SRA’s broader client money agenda. They are also relatively common failings.

For firms holding client money, do not treat client account compliance as a back-office process that only the cashiering team needs to worry about. It is a governance issue, a COFA issue, a board issue and, increasingly, an SRA enforcement issue.

Firms that have not recently tested their client account controls should consider doing so now. An external client account health check is a sensible way to identify gaps, tighten controls and create evidence that the firm is taking its responsibilities seriously.

Reconciliation is not the end of the control process. It is the start of the questions that good management should be asking.