Client Money Flashcards
What are the four categories of client money?
- money held on behalf of clients while providing them with regulated legal services (net proceeds of sale or monies collected in the administration of a deceased’s estate)
- money held on behalf of third parties while providing legal services to clients (deposit from a buyer)
- money held by solicitors acting in certain specified roles (acting as trustee or donee of POA)
- money held on account of costs and unpaid disbursements prior to delivery of a bill
Where should client money be kept?
In the client account (must be a bank in E&W, in the name of the firm and include the word client)
Why is client money kept separate from business?
If the firm were to be subject to insolvency proceedings, only the business money should be used to pay off debts to creditors.
When is a firm not required to keep a client account?
Where they have selected to use a third party business to manage the client money in third party managed accounts
Or
- the only client money that the firm receives us money received in respect of their own fees and any unpaid disbursements prior to delivery of a bill
- the firm does not operate a client account for any other purpose and
- the firm has told clients in advance where and how the money will be held
Firms offering only criminal litigation may benefit from this.
If the firm is not required to keep a client account, then they are not required to keep the money separate or have it available on demand.
Where must client money be paid?
Paid promptly into the client account unless:
- it is held or received by a solicitor as trustee or as the holder of a specified office or appointment
- payments from the LAA can be paid to the business account, even before the bill has been delivered
- arrangements otherwise agreed in writing with clients or third parties
What entries should be made in the ledgers upon receipt of client money?
A double entry, one in the cash sheet and one in the client’s ledger. The credit entry will be in the client’s ledger and the debit entry in the cash sheet.
Should client money be available on demand?
Yes, a client account should be a current or deposit account which requires no notice period for withdrawals however a firm can agree to depart from this with the client and any such agreement must be in writing.
Client money to be returned promptly to client or third party. Is there a definition of promptly?
No but should be returned as quickly as possible as soon as there is no longer any proper reason for holding it.
What should you do if a client has stopped giving instructions and you still hold their money?
Firm should try to return money to the bank account it originally came from. If firm does not no where to return it and reasonable time and efforts have been made, the firm can seek approval from the SRA to donate the money to charity. No approval is required for amounts under £500
When can withdrawals of client money be made?
- for the purpose for which it is being held
- following instructions from the client or third party for whom it is held
- following authorisation from the SRA
What if client A does not hold enough money, can funds from client B be used?
No, client money should only be withdrawn if sufficient funds are held on behalf of that specific client.
What entries should be made in the ledger following a withdrawal of client money?
DR client ledger client account and CR cash sheet client account.
Prohibition on providing banking facilities
Firms are not regulated to provide banking facilities and so managers and COFA should monitor this to avoid involvement in money laundering. The money being held must be used for a purpose directly related to the provision of a legal service.
What are examples of business money that are to be paid into the business account?
Money received in payment for costs and disbursements following delivery of a bill. Money received for paid disbursements, even before delivery of a bill.
Entries that would be made - CR on the client ledger business account and DR cash sheet business account.
What are examples of business money that can be paid out or the business account?
Payments of disbursements using the principal method.
Entries that would be made - DR client ledger business account and CR cash sheet business account
