Client Money and Client Accounts Flashcards
Explain rule 4.1 of the SRA solicitors accounts rules.
Client money must be kept separate from money belonging to the firm.
How does rule 2.1 define client money?
Its states client money is money held or received by a firm:
1) Relating to regulated services delivered by you to a client;
2) On behalf of a third party in relation to regulated services delivered by you (eg money held as an agent or stakeholder, or held to the sender’s order);
3) As a trustee or holder of specified office or appointment, such as a donee of a power of attorney, Court Protection deputy or trustee of an occupational pension scheme;
4) In respect of fees, any unpaid disbursements if held or received prior to delivery of a bill for the same
How is fees defined for the purposes of the SRA accounts rules?
Defined as ‘your own charges or profit costs (including any VAT element)’.
How are disbursements defined for the purposes of the SRA accounts rules?
Defined as ‘costs or expenses paid or to be paid to a third party on behalf of the client or trust (including any vat element)’
Explain how money is treated where a firm has paid a disbursement and the client later send the firm the money for that disbursement.
The money received from the client will be business money (ie will be paid into the business account).
Is money received for fees and disbursements deemed client money under the SRA accounts rules?
Yes. Unless the disbursement was paid in advance by the firm and is later recouped from the client.
What is a client account and are there any requirements imposed by the SRA rules?
- A client account is an account whereby all client money is kept.
- Rule 3 requires this account to be at a bank or building society in England and Wales.
- The account name must include the word client in it to distinguish between the client account and the firm’s business accounts.
- Rule 2.4 requires firms to ensure client money is available on demand unless an alternative arrangement has been agreed with the client or the third party for whom the money is held. As such, firms should not put client money in accounts which require extended notice periods for withdrawals.
What is the significance of including the word client in the account name of the client account?
- It provides the account with protection against recourse from the bank.
- In effect, a bank has no recourse against the money in a client account to enforce liabilities against a solicitor or a firm, given this will clearly be deemed and labelled as client money to be distinguished from the firm’s business accounts.
Explain the general rule for paying client money into the client bank account (rule 2.3).
General rule is that client money must be paid into the client bank account ‘promptly.
List the exceptions to the general rule that client money must be paid into the client bank account promptly (rule 2.3).
(a) where client money falls within Rule 2.1(c) (money held as a trustee or holder of a
specified office or appointment) and paying it into a client bank account would conflict with obligations relating to the specified office or appointment;
(b) the client money represents payments received from the Legal Aid Agency (LAA) for the firm’s costs; or
(c) the firm agrees an alternative arrangement in writing with the client, or the third party, for whom the money is held.
Can payments from the Legal Aid Agency be paid into a firm’s business account?
Yes.
Where an LAA payment is paid into a firm’s business account, is there a requirement on how long the payment can be held before being paid into the client account?
- No. However this does not mean firms can hold payments from the LAA in their business bank account indefinitely.
- For example, if a firm does not pay an experts fee (due to retaining such money in its account to avoid an increasing overdraft) and this therefore delays a client matter, this would be deemed to breach the accounts rules to make payments promptly.
Explain the limited exception to the general rule (2.2) that client money must be held in a client bank account (in relation to disbursements).
Firm’s can hold client money outside a client bank account where the following requirements are satisfied:
1) Client money received or held is for fees and/or unpaid disbursements, and is received prior to the bill; and
2) The firm does not have a client t bank account for any other season; and
3) The firm informs the client in advance where and how the money is to be held.
Explain the proceeder with regards to mixed receipts.
In accordance with rule 4.2 the firm must allocate the correct funds to the correct account promptly.
What does rule 2.5 of the SRA accounts rules provide?
Client money must be returned promptly to the client or third party for whom the money is held as soon as there is no longer and proper reason to hold those funds.
What does rule 4.1 of the SRA accounts rules provide?
Requires client money to be kept separate from the firm’s own money.
Define mixed receipts for the purposes of the SRA accounts rules.
- A mixed receipt is a mixed payment from a client which contains money for two different purposes (ie some money which can be paid into the business account and some which can be paid into the client account).
- A common example would be client money for a particular purpose, in addition to money to pay the firm’s bill.
Explain rule 4.3 of the SRA accounts rules.
Where firm holds client money and some or all of that money is to be used to pay the firm’s costs:
1) A bill of costs, or other written notification must be sent to the client or the paying party;
2) This must be done prior to the transfer of any client money out of a client account to make the payment; and
3) Such payments must be for specific sum identified in bill of costs/ written notice and covered by the amount held for the particular client/ third party.
This money should be transferred promptly once the ab one are satisfied.
Is there an exception to rule 4.3 of the SRA accounts rules (in relation to transferring client money held to pay costs out font client account)?
Yes.
Where the bill sent to the client includes an anticipated disbursement not incurred, you will not be considered to be in breach off rule 4.3 by leaving the money associated with those billed anticipated disbursements in the client bank accountn until such time as they are paid.
Expalin rule 5 of the SRA accounts rules.
- It is permitted for money to be withdrawn from the client bank account for the purpose for which it is being held.
- If firm makes it clear to client that the client money in question may be used to reimburse the firm for payments made, this can be done without issuing a bill or written notification to the client.
- This may be explained in the client care letter, TOEs or other communications.
- Note this DOES NOT apply where disbursements have not yet been incurred/ have not yet been paid by the firm.
List the circumstances where client money can be withdrawn (set out in rule 5.1 of the SRA accounts rules).
1) For the purposes for which it is being held; or
2) Following instructions from client or third party for whom money is held; or
3) On SRA’s prior written authorisation or in prescribed circumstances.
Explain real 5.2 of the SRA accounts rules.
All withdrawals from the client account must be apporpaitely authorised and supervised.
Explain rule 5.3 of the SRA accounts rules.
Withdrawals can only be made from a client account if there is sufficient funds in the account to do so (ie client account cannot be put into debt as this would effectively be using money marked for another client for the client in question, breaching professional conduct and accounts rules).
Expel rule 6 of the SRA accounts rules.
Breaches of the rules and errors must be correctly rectified promptly discovery of the error, and the money improperly withdrawn must be immediately replaced.
