SRA Accounts Rule 4. Keeping client money separate

Bookkeeping, Compliance - 27/01/2026

If your firm handles client money, Rule 4 is one of the simplest and most important safeguards you rely on. Whenever money arrives in the firm, you need to be clear about who it belongs to, and you need to keep anything that belongs to clients completely separate from the firm’s own funds. It sounds straightforward. It is still one of the most common areas where firms slip up. Many of the enforcement cases published by the SRA and the SDT in the last couple of years point right back to this rule. (Source: PKF Francis Clark)

What Rule 4 actually means in day to day practice

Rule 4 boils down to three responsibilities that come up constantly in legal finance work.

1. Keep client money and business money apart.
Client money must stay in a client account. Money that belongs to the firm must stay in the business account. There is no room for mixing the two.

2. Sort mixed payments quickly.
Sometimes money arrives that includes both client funds and money for your firm’s fees. When this happens, you need to decide what belongs where and move the amounts to the correct account promptly. Leaving mixed money in the wrong place is one of the biggest causes of breaches for small and medium sized firms.

3. Issue a bill before transferring your costs.
If you want to pay your firm’s costs from money held in the client account, you must provide a bill or clear written notification first. You can only transfer the amount stated. (Source: MHA)

These steps seem simple. Problems only start when firms rely on memory instead of process, or assume that small exceptions will not matter.

How to stay compliant and make this routine

Set up clear account structures.
Your client account should only ever hold client money. Your business account should only ever hold business money. If in doubt, treat the funds as client money until you are certain.

Have a process for mixed receipts.
Many COFAs choose an internal rule such as allocating mixed payments within one working day. When the rule is written down and followed, nothing gets missed.

Do the paperwork first.
Bill first. Transfer second. This keeps the audit trail clean and ensures the right amount moves between accounts. (Source: Legal Services Board consultation paper)

Use reconciliations to catch anything out of place.
Your Rule 8 reconciliations offer an opportunity to spot whether client money has ended up in the business account or business money has made its way into the client account. This is often where firms notice accidental mixing.

Write your policy down.
Many of the firms that appear in enforcement decisions did not set out their processes clearly. A simple written policy helps everyone understand what should happen and reduces the chance of mistakes.

Common pitfalls that still cause trouble

Holding business money in the client account even temporarily.
This is a recurring theme in SDT cases. Even small amounts kept in the wrong account create risk and attract regulatory attention.

Leaving mixed receipts to be sorted later.
This makes reconciliations difficult and is a red flag for the SRA.

Transferring costs without supporting paperwork.
Without a bill or written notice, you cannot move the money. Many firms assume the work being completed is enough. It is not.

Weak evidence.
Even if the steps you took were correct, the SRA expects to see proof. That includes copies of bills, transfer notes, allocation decisions and reconciliation documents.

Not considering linked rules.
The SRA recently reminded firms to ensure clients receive interest owed to them when rates rise. This shows that weaknesses in one part of client money handling often connect to weaknesses elsewhere. (Source: SRA Update)

Related context: Reuters coverage of high profile AML and financial control failures, which highlight broader risk management expectations. (Reuters example)

A quick checklist for COFAs and partners

• Client and business money always kept separate
• Mixed payments are allocated quickly
• Transfers for costs always follow a bill or written notice
• Reconciliations include checks for misplaced funds
• Records are consistent, clear and accessible

Getting Rule 4 right is about forming reliable habits and building systems that keep your firm safe. When your controls are consistent, your risk falls sharply and compliance becomes second nature.

How Numero supports firms with Rule 4

At Numero we help firms make these processes part of their normal daily routine. Our outsourced cashiering team monitors allocations, keeps mixed payments under control, checks for separation issues and makes sure every transfer is supported by the right paperwork. It gives COFAs confidence and frees up your team to focus on legal work rather than bookkeeping concerns.

If you would like to see how day to day support can reduce your risk and ease the pressure on your finance team, we would be happy to talk.