SRA Accounts Rule 7. Interest on Client Money

Business, Compliance - 27/01/2026

If your firm holds client money, one rule you cannot afford to overlook is Rule 7 of the SRA Accounts Rules. This rule governs when and how you must account to clients or third parties for interest on money you hold on their behalf. If you get this wrong, it may not only frustrate clients, it can also expose the firm to regulatory scrutiny.

What the rule actually requires in plain English

Under Rule 7.1, you must “account to clients or third parties for a fair sum of interest on any client money held by you on their behalf”. (Solicitors Regulation Authority)

You are not necessarily expected to pay every penny of bank interest earned on that money, but the amount must be fair.

Under Rule 7.2, you may agree a different approach with the client, but only if you provide sufficient information to enable informed consent. (Solicitors Regulation Authority)
In practice this means your firm must have a clear, transparent policy setting out when interest will be paid, how it is calculated, whether a de-minimis threshold applies, and how designated accounts versus general client accounts are treated.

Why it matters

Rising interest rates have made this rule far more relevant. The SRA’s news release on 10 April 2024 noted that law firms’ total net interest income from client monies rose from £2.6 million in 2022 to £27.5 million in the year covered. (Solicitors Regulation Authority)

Commentary in the sector warns that many firms continue to pay very low interest to clients despite earning higher rates from banks. (Today’s Wills and Probate) For COFAs and partners this is both a governance and reputational issue, because clients expect their funds to be handled properly, and the SRA is increasingly paying attention to fairness in how interest is passed on. (Armstrong Watson)

How to follow Rule 7 in practice

1. Create and publish a clear interest policy
Even though the current Accounts Rules are less prescriptive than older versions, best practice remains to maintain a written interest policy. This should explain when interest is payable, how it is calculated, the rate or benchmark used, any de-minimis threshold, and how designated vs general client accounts are treated. (Hazlewoods)

2. Define what “fair” looks like for your firm
Consider: the size of client balances held, how long you expect to hold them, current market rates, and the calculation method (e.g., daily balance or simple rate). Many firms link the rate to the Bank of England base rate or a commercial benchmark. (Today’s Wills and Probate)

3. Distinguish between designated and general client accounts
Money in a designated client account typically means the client retains all interest earned. Money in a pooled general client account may accrue interest for the firm—however you must still treat clients fairly in line with your policy.

4. Obtain informed consent for alternative arrangements
If you decide not to pay interest in certain situations (for example very small balances or short holding periods) or to pay a different sum instead of calculated interest, the client must understand and agree in writing.

5. Review your policy regularly
Interest rates change. What was fair one year ago might not be fair now. Review your interest policy at least annually or when interest rates shift significantly. Keep records of the balances held, interest earned, amounts paid to clients and reasons for any withheld interest.

Common pitfalls

No published interest policy
Some firms rely on undocumented or outdated practices. This creates uncertainty and risk.

Using outdated interest benchmarks
A policy drafted years ago may no longer reflect what is fair now. Rates of interest have changed dramatically.

Failing to obtain informed consent
If you deviate from the standard treatment under Rule 7.2 you must explain clearly and obtain agreement.

Inconsistent application
Even a fair-sounding policy causes problems if staff apply it inconsistently across matters or clients.

Firms retaining excessive interest
The SRA is warning that some firms may be too reliant on interest earned from client money and is consulting on whether firms should be able to retain any interest at all. (lawgazette.co.uk)

Quick checklist for COFAs and partners

• Do you have a clear, accessible, written interest policy that clients can see?
• Is your approach to interest fair, transparent and aligned with current market conditions?
• Do clients give informed consent when you deviate from default treatment?
• Do you maintain records of interest decisions and calculations?
• Do you review your policy annually and adjust when rates change?

If you implement these steps you will meet both the letter and the spirit of Rule 7. You will also protect clients, reduce regulatory risk, and strengthen trust in your firm’s financial controls.

How Numero can help

Managing interest on client money fairly requires reliable data, accurate reconciliations and consistent application of policy. Many firms understand the rules but struggle to maintain the necessary systems or resources.

At Numero, we support firms by providing accurate daily posting, reliable reconciliations and clear reporting so that COFAs and partners can apply their interest policies confidently.

If you want a smoother, more dependable approach to client money compliance, get in touch with us. A short conversation can show you how outsourced cashiering can reduce risk and free your team to focus on advising clients, not administration.