How Do Law Firms Prepare for an SRA Inspection

At Towerstone Accountants we provide specialist accountancy services for solicitors and law firms operating under SRA regulation. This article has been written to explain How do law firms prepare for an SRA inspection in clear practical terms so you understand how the rules apply in day to day practice. Our aim is to help you stay compliant protect client money and make informed financial decisions.

An SRA inspection is one of those events that most law firms know will happen at some point but very few ever feel fully prepared for. In my experience working alongside solicitors and compliance teams the firms that handle inspections well are not the ones who scramble in the weeks before the visit. They are the ones who treat compliance as a day to day discipline rather than a last minute exercise.

An inspection by the Solicitors Regulation Authority is not designed to catch firms out for minor technical errors. Its purpose is to assess whether a firm is managing risk properly protecting clients and complying with its regulatory obligations in practice not just on paper. That distinction matters because preparation is as much about culture systems and evidence as it is about written policies.

In this article I will explain how law firms prepare effectively for an SRA inspection. I will focus on what actually works in the real world rather than theoretical checklists. I will also share the areas that inspectors typically focus on and the mistakes I see firms make when they prepare in the wrong way.

Understanding what an SRA inspection is really about

Before any preparation begins it is important to understand the mindset of the SRA.

An inspection is not an audit in the traditional accounting sense and it is not a disciplinary hearing. It is a regulatory assessment designed to answer a few core questions

• Does the firm understand its regulatory obligations

• Are risks identified managed and documented

• Are client interests protected at all times

• Are systems operating consistently across the firm

• Is compliance embedded into everyday behaviour

Firms that approach inspections defensively or treat them as a box ticking exercise often struggle because inspectors can quickly see when policies do not reflect reality.

Preparing starts long before the inspection notice arrives

The most important preparation happens months or even years before an inspection is announced.

In practice this means

• Compliance processes are followed consistently

• Records are kept up to date

• Issues are addressed as they arise

• Responsibility is clearly allocated

When an inspection notice arrives well run firms are usually calm because very little changes. Firms that rely on last minute preparation are usually under pressure because gaps start to appear quickly.

Appointing clear ownership and responsibility

Every firm preparing for an inspection should have absolute clarity on who owns compliance.

This usually includes

• A COLP responsible for regulatory compliance

• A COFA responsible for financial and client money compliance

• Senior management oversight

• Clear reporting lines

Preparation often fails where responsibility is vague or spread too thinly. Inspectors will ask who is responsible for specific areas and they expect clear confident answers.

Reviewing the firm’s risk assessment

A firm wide risk assessment is central to SRA expectations.

Inspectors will usually want to see

• A documented risk assessment

• Evidence it is reviewed regularly

• Evidence that risks are actually managed not just listed

• Links between risks and controls

Preparation should involve reviewing the risk assessment and asking some honest questions

• Does it reflect how the firm actually operates

• Have new services or work types been added

• Are emerging risks such as cyber crime or AML reflected

• Are mitigation actions realistic and in place

A risk assessment that has not been updated for years is a common red flag.

Reviewing policies and procedures properly

Most firms have policies covering areas such as

• AML and counter terrorist financing

• Client money handling

• Complaints handling

• Data protection

• Conflicts of interest

• Supervision

• File management

Preparation is not about rewriting these policies from scratch. It is about ensuring they

• Reflect current practice

• Are understood by staff

• Are actually followed

• Are reviewed and approved appropriately

Inspectors may ask staff about policies. If the answer is I have never seen that document it undermines confidence immediately.

Client money and accounts readiness

Client money is one of the highest risk areas and one of the first things inspectors focus on.

Preparation should include a thorough review of

• Client account reconciliations

• Timing and frequency of reconciliations

• Evidence of review and sign off

• Treatment of residual balances

• Transfers between client and office accounts

• Accounting records and audit trails

I always advise firms to assume inspectors will ask for

• Recent reconciliations

• Historical samples

• Explanations for differences

• Evidence issues were addressed promptly

If reconciliations are late inconsistent or poorly documented they should be corrected well before the inspection.

Reviewing billing and fee transfer processes

Billing is closely linked to client money compliance.

Preparation should ensure that

• Fees are billed promptly

• Only billed fees are transferred from client accounts

• VAT is treated correctly

• Clear links exist between bills and transfers

• Authorisation processes are documented

Inspectors often look for informal practices where money is moved first and justified later. That is a risk area that should be addressed early.

File reviews and supervision evidence

Inspectors want to see that files are properly supervised and risks are managed at matter level.

Preparation usually involves

• Reviewing a sample of client files

• Checking that risk assessments are completed

• Ensuring AML checks are present and up to date

• Confirming key decisions are documented

• Checking supervision notes are recorded

This exercise often highlights training needs or inconsistencies between departments. Addressing those before the inspection demonstrates proactive management.

Anti money laundering compliance

AML remains a major focus for the SRA.

Preparation should include

• Reviewing the firm wide AML risk assessment

• Ensuring client due diligence is complete

• Checking source of funds evidence

• Confirming ongoing monitoring procedures

• Reviewing training records

Inspectors are not just looking for documents. They want to see that staff understand AML risks and apply judgement rather than treating it as a form filling exercise.

Complaints handling readiness

Even firms with very few complaints must be able to demonstrate a compliant process.

Preparation should ensure that

• The complaints policy is up to date

• Clients are informed of their right to complain

• Complaints are logged consistently

• Responses meet regulatory timeframes

• Outcomes are documented

Inspectors may ask for the complaints register even if there have been no recent complaints. An empty register is acceptable but a missing one is not.

Training and competence records

Training is another area where firms often fall short.

Preparation should include

• Reviewing training records

• Ensuring mandatory training is completed

• Documenting CPD compliance

• Recording AML and compliance training

Inspectors often ask how the firm ensures ongoing competence. Being able to show structured training records gives confidence.

Governance and decision making evidence

Inspectors look at how decisions are made not just what decisions are made.

Preparation should include

• Reviewing board or partners meeting minutes

• Evidence of compliance discussions

• Records of risk decisions

• Evidence issues are escalated appropriately

This shows that compliance is embedded at leadership level rather than delegated and forgotten.

Data protection and cyber security

Data protection and cyber risk have become increasingly important.

Preparation should involve

• Reviewing data protection policies

• Checking access controls

• Confirming breach response procedures

• Reviewing cyber security measures

• Ensuring staff awareness

Inspectors may ask how the firm protects client data in practice not just in theory.

Preparing staff for inspection interviews

Inspectors often speak to staff at different levels.

Preparation does not mean coaching scripted answers. It means ensuring staff

• Understand their role in compliance

• Know where to find policies

• Understand escalation procedures

• Feel confident explaining their processes

Staff who are unsure or disengaged can undermine an otherwise strong compliance framework.

Organising documentation and evidence

A well organised evidence pack makes inspections smoother.

Preparation should involve

• Collating key policies

• Organising recent reconciliations

• Preparing risk assessments

• Ensuring records are accessible

• Avoiding last minute document creation

Inspectors can tell when documents have been created in a rush. That often leads to deeper questioning.

Conducting a mock inspection or internal review

One of the most effective preparation steps is a mock inspection.

This may involve

• An internal compliance review

• An external adviser review

• Testing processes against SRA expectations

• Identifying gaps early

I often see firms gain enormous value from this exercise because it highlights issues in a controlled environment rather than during a formal inspection.

Dealing with issues honestly and early

No firm is perfect. Inspectors understand that.

What matters is how issues are handled.

Preparation should include

• Identifying known weaknesses

• Documenting corrective actions

• Showing evidence of improvement

• Being ready to explain lessons learned

Trying to hide issues or present an unrealistic picture is far more damaging than acknowledging and addressing problems.

Common mistakes firms make when preparing

The same mistakes appear again and again.

• Treating preparation as a paperwork exercise

• Updating policies without changing behaviour

• Ignoring client account issues

• Failing to involve senior management

• Leaving preparation too late

Avoiding these mistakes often makes the difference between a smooth inspection and a stressful one.

Final thoughts

Preparing for an SRA inspection is not about fear or formality. It is about demonstrating that your firm is well run compliant and focused on protecting clients.

The firms that perform best are those that embed compliance into everyday practice. They keep good records review risks regularly train their staff and address issues early. When an inspection arrives preparation becomes confirmation rather than panic.

If your firm has not reviewed its readiness recently now is the right time to do so. A structured proactive approach not only reduces inspection risk but also strengthens the firm as a whole.

You may also find our guidance on What are the SRA accounting rules and how do they work and How does an accountant help with an SRA audit useful when reviewing related SRA and accounting obligations. For a broader overview of solicitor accounting and compliance topics you can visit our solicitors accounts rules hub which brings all related guidance together.