Joint Accounts, the Client’s Own Bank Account and Third Party Managed Accounts

Question 1

What are the SRA principles that apply to a solicitor’s dealings with client or third-party money?

Answer 1

• SRA Principle 7: Solicitors must act in the best interests of their client at all times.
• SRA Code of Conduct Paragraph 4.2: Requires solicitors to safeguard money or assets entrusted to them by clients or third parties.
• This includes preventing misuse, managing risks, and ensuring transparency in the handling of funds.

Question 2

What are the specific operational requirements for a solicitor managing a joint account with a client or third party?

Answer 2

1. Obtain Regular Statements: Statements from banks or financial institutions must be obtained at least every five weeks (Rule 8.2).
2. Maintain Central Records: Keep a central, accessible record of bills and notifications of costs (Rule 8.4).
3. Mitigating Risk: Additional measures, such as requiring joint signatures for transactions, are encouraged to minimize risks associated with shared access to funds.
4. Applicability of Rules: Only Rules 8.2 and 8.4 of the SRA Accounts Rules apply to joint accounts, as these accounts are not considered client accounts. However, the funds in the account are still classified as client money.

Question 3

What are the rules and practices for solicitors acting as signatories on a client’s personal bank account?

Answer 3

1. Reconciliation and Statements:
   * Obtain bank statements every five weeks (Rule 10.1).

• Reconcile the account at least every five weeks unless circumstances prevent this.

2. Maintain Records:
   * Keep a central record of transactions, bills, and other notifications of costs.
3. Proposed Amendments to Rule 10:
   * Reconciliation requirements extended to every 16 weeks.

• A firm must maintain a central register of all client accounts under its control.
• Reconciliations must be signed off by the firm’s COFA or a manager.

4. SRA’s Flexibility: If reconciliation is impractical, solicitors must ensure money is safeguarded and document reasons for delays.

Question 4

What are the key features and conditions for using a Third Party Managed Account (TPMA)?

Answer 4

• Definition: A TPMA is an account managed by a regulated third party (e.g., an escrow service) that holds and disburses client money.Regulatory Compliance:
• The TPMA provider must be regulated by the Financial Conduct Authority (FCA).
• Providers must be authorized as a payment institution or equivalent.

Benefits:
* Reduces the administrative burden on the firm.

• Eliminates the need for a firm-held client bank account.
• Offers enhanced security and potential cost savings, such as reduced insurance premiums.

Client Protection:

• Clients must be informed of the regulatory differences and any associated risks.
• Solicitors must monitor transactions and maintain oversight of the TPMA.

Question 5

What are the benefits of using a TPMA instead of a traditional client account?

Answer 5

1. Cost Reduction:
   * Lower professional indemnity insurance premiums.

• Reduced contributions to the Compensation Fund.
• No requirement for accountants’ reports.

2. Operational Efficiency:
   * Outsourcing eliminates the need for firms to manage client funds directly.

• Simplifies compliance with financial regulations.

3. Risk Mitigation:
   * Reduced risk of cybercrime as TPMA providers may have robust cybersecurity measures.

• May lower money laundering risks.

Question 6

What responsibilities does a solicitor have when engaging a TPMA for a client?

Answer 6

1. Client Communication:
   * Provide clear information on how the TPMA will operate.

• Ensure the client understands transaction processes, fees, and their rights (e.g., to terminate the TPMA agreement).

2. Monitoring Transactions:
   * Maintain oversight of the TPMA to ensure accurate transaction records.

• Regularly review account statements from the TPMA provider.

3. Record Keeping:
   * Internal systems must be in place to monitor and document TPMA transactions, ensuring compliance with Rule 11.2.

Question 7

How should clients be informed about regulatory protections when using a TPMA?

Answer 7

1. Different Protections:
   * Inform clients that regulatory protection under the FCA differs from protections under the SRA.
2. Complaint Procedures:
   * Notify clients that complaints regarding the TPMA provider must be directed to the provider using its complaints procedure.
3. Transparency:
   * Ensure clients understand the implications and scope of protections provided by the TPMA provider.

Question 8

What information must a solicitor provide to the SRA when using a TPMA?

Answer 8

1. Initial Notification:
   * Submit the TPMA form with details such as:

• Firm’s name and SRA number.
• Name of the TPMA provider.
• FCA authorization number of the TPMA provider.
• Start date of TPMA usage.

2. Ongoing Use:
   * Notify the SRA only once for each TPMA provider unless multiple providers are used.

• The firm must maintain accurate records of all TPMA providers engaged.