Client Money

Question 1

Why is it important to know what client money is?

Answer 1

Client money must be kept separate from money belonging to the authorised body

Question 2

What is client money?

Answer 2

Money held/received by you for:

• regulated services for the client
• on behalf of a third party in relation to regulated service by you
• as a trustee or as the holder of a specified office or appointment
• in respect of your fees and any unpaid disbursements if held or received prior to delivery of a bill for the same

Question 3

What is non-client money?

Answer 3

Not defined by SRA but anything that does not fall within definition of client money

Question 4

Why do law firms need to have a client account?

Answer 4

To meet their obligation to keep client money separate

Question 5

What rules are there in relation to client accounts (the account itself)?

Answer 5

Must be at a branch of a bank in England and Wales

Account name must contain name of law firm and word client

Question 6

Can the client account be used to provide banking facilities to clients?

Answer 6

No

Question 7

What are the exceptions to the rule that client money must be paid promptly into the client account?

Answer 7

• to do so would conflict with obligation under rules or regulation relating to specific office (ie as trustee)
• client money represents money received from Legal Aid Agency
• money is held under alternative agreement in writing with client or third party it is held for

Question 8

Can a firm hold client money if it has no client account?

Answer 8

Yes where:

• only client money received is for fees or unpaid disbursements prior to bill
• any money held for disbursements relates to costs or expenses incurred by the firm on behalf of the client and the firm is liable
• there is no client account
• client must also be informed in advance f how their money is going to be held

Question 9

What happens if there is no longer any proper reason to hold client money?

Answer 9

It must be returned promptly to the client

Question 10

What happens if there is a breach of rules in relation to client money?

Answer 10

It must be corrected promptly

Question 11

Is interest payable to clients for firms held by them?

Answer 11

Yes - must account for a fair sum of interest

Question 12

What happens if a mixed payment is received that contains both client and non-client money?

Answer 12

The money must promptly be allocated to the correct accounts

Question 13

When can you withdraw money from the client account?

Answer 13

Can withdraw:

• for the purpose it is being held
• following receipt of instructions from client or third party whom money is held for
• on SRA’s prior written authorisation or in prescribed circumstances

Question 14

What is the only current prescribed circumstance where money from the client account can be withdrawn?

Answer 14

Withdrawing residual client balances of less than £500 and donating balance to charity where reasonable steps cannot find the true owner

Question 15

Must all withdrawals from the client account be authorised and supervised?

Answer 15

Yes

Question 16

What happens if funds held on behalf of a client are insufficient currently to cover costs?

Answer 16

They cannot be used

Non-client money should be used which can later be recovered from client

Question 17

When can money held on behalf of clients be used to pay costs?

Answer 17

• if a bill of costs has been given to the client or paying party before any transfer from the client account
• that bill of costs is for a specified sum that can be covered by funds held