Client money and client accounts Flashcards
What is client money?
Any money that a law firm receives or holds that does not belong to the firm
What are the four categories of client money?
- money held on behalf of clients while providing them with legal services
- money held on behalf of third parties while providing legal services to clients
- money held by solicitors acting in certain specified roles
- money held on account of costs and unpaid disbursements prior to the delivery of a bill
What are regulated services?
The legal and other professional services that firms are regulated by the SRA to provide. It includes a solicitor acting as a trustee.
When might money be held on behalf of third parties while providing legal services to clients?
In a property transaction, a solicitor may receive a deposit from the buyer that is held either as agent or stakeholder until the sale is completed or it can be money held to the sender’s order which is where a third party sends money to the solicitor to be held on their behalf until they confirm it can be released to the client or returned to them
When may a solicitor be acting in certain specified roles?
- trustee for a trust
- donee of a power of attorney
- a Court of Protection deputy
What is the difference between fees and disbursements?
Fees are the firm’s own charges or profit costs and disbursements are any costs or expense paid or to be paid to a third party on behalf of the client
What are some examples of disbursements?
- conveyancing search fees
- counsel’s fees
- land registry fees for registration
What must a client account be labelled with?
Both the name of the firm and the word ‘client’
When might a firm not be required to have a separate client account?
- the only client money that the firm receives is money received in respect of their own fees and any unpaid disbursements (only includes disbursements the firm is liable to pay)
- the firm does not operate a client account for any other purpose
- the firm has told clients in advance where and how their money will be held
What is an example of a firm that could fall into the exception of not requiring a separate client account?
A firm that only offered criminal litigation services
In what way must client money be paid into a client account?
Promptly
How will the receipt of client money be recorded?
A double entry must be made using the firm’s cash sheet and the individual client ledger. Both entries will be in the client account columns and the credit entry will be in the client ledger while the debit entry will be in the cash sheet
When may client money be withheld from a client account?
- money that is held or received by a solicitor as a trustee or as the holder of a specific appointment. This allows the solicitor to be able to comply with other role-specific requirements
- when the legal aid agency makes a payment for the firm’s costs. This can be paid straight into the firm’s business account even before a bill however this is still client money
- the firm can agree alternative arrangements for holding client money with clients or third parties provided it is done in advance and is recorded in writing
In what way should client money be available to the client?
On demand so immediately
Are there any exceptions to client money being available on demand?
The firm can agree with the client that the money is not available on demand but this must be in writing
Once there is no longer any proper reason for the firm to be holding the client’s money what must they do?
It must be returned to the client promptly
What should the firm do if they are holding client money as the matter is not complete but the client stops giving instructions and cannot be contacted?
If the firm is unable to contact the client for further instructions they should return the money to the client
What happens if the firm cannot locate the client and does not know where to return the money to?
After a reasonable lapse of time and reasonable efforts to contact the client the firm can seek approval from the SRA to withdraw the balance of client’s money and pay it to charity. No SRA approval is needed if the sum is less than £500
When can client money be withdrawn from the client account?
- 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
Who is responsible for establishing systems and processes to minimise any risks to client money in the withdrawal process?
Managers and Compliance officer for finance and administration (COFA)
If client money is being withdrawn, what are the correct journal entries?
Debit on the client ledger and credit on the client cash sheet
Why can law firms not hold money for clients even if their transaction is finished?
They are not regulated by the SRA to provide banking facilities for clients and therefore must only hold client money for a purpose that is directly related to the provision of legal services
Can firms mix client money with business money?
Client money should be separate from business money - if the firm was involved in insolvency proceedings ad the client money was separate it would be kept safe and not be able to be taken
What happens if client money is not paid into the client account properly or where money is withdrawn from the client account incorrectly?
Any breaches must be corrected promptly upon discovery but if it is a withdrawal or improperly withheld the breach must be remedied immediately
