Solicitors accounts

Question 1

Who does Rule 1 of the Solicitors’ accounts rules apply to

Answer 1

authorised bodies, managers and employees

Question 2

What does rule 4.1 require?

Answer 2

That client money be kept separate from money belonging to the firm

Question 3

How is ‘Client’ defined in the glossay

Answer 3

A person for whom you act

Question 4

How does Rule 2.1 define client money

Answer 4

Money that is held or received by a firm

(a) relating to regulated services delivered by you to a client’
(b) on behalf of a third party in relation to regulated services delivered by you (such as money held as agent, stakeholder or held on the sender’s order)
(c) as a trutee o as a holder of a specified office or appointment, such as donee of a power of attorney, deputy, trustee of occupational pension scheme

Question 5

What did Hildyard J say in Challinor and Others v Juliet Bellis & Co?

Answer 5

Solicitor must clarify any ambiguity as to whom client money is held for

Question 6

How are fees defined in glossary?

Answer 6

Your own charges or profit costs (including any VAT element)

Question 7

How are disbursements defined in glossary?

Answer 7

Any costs or expenses paid or to be paid to a third party on behalf of the client or trust (inc VAT) save for office expenses such as postage and courier fees

Question 8

When do fees and disbursements paid in advance stop being client money?

Answer 8

Until they are billed - Rule 2.1(d)

Question 9

How do the rules treat a payment for a disbursement that has already been incurred?

Answer 9

This is not client money and may go straight to a business account

Question 10

How do the rules treat a disbursement that has been billed but not yet incurred

Answer 10

As it has been billed it is not client money and the payment for the disbursement may go into a business account. Once incurred the disbursement will be paid from the business account

Question 11

What does Rule 3 say in relation to a client bank account

Answer 11

Must have ‘client’ in the title

Question 12

What does Rule 3.3 say

Answer 12

Must not provide banking facilities out of client account

Question 13

What were the three reasons given in Fuglers & Others v SRA for why using a client account for banking facilities was objectionable

Answer 13

(1) Objectionable in of itself - solicitors should not carry out banking activties
(2) Money laundering risk
(3) Risk of insolvency - (banks cannot offer services once client is insolvent, solicitors can)

Question 14

What did Premji Naram Patel v SRA say?

Answer 14

payments into and out of client account must relate to an underlying transaction relating to the professional services a solicitor provides (in this case the solicitor was transferring money into the client account and out to a third party as part of a business deal)

Question 15

What has the Office of the Piblic Guardian said about funds in relation to deputyships?

Answer 15

Best practice is to keep funds in seperate client account for the client’s own funds rather than mix with other client’s in the larger client account

Question 16

Rule 2.3 says money should be paid ‘promptly’ into the client account but what are the exceptions

Answer 16

(a) where money falls within Rule 2.1(c) (held as trustee or holder of specified office and paying it into client account would conflict with obligations relating to that office or appointment.
(b) client money represents payments received from Legal Aid Agency for the firms costs or
(c) firm agrees an alternative arrangement in writing with the client, or the third party for whom the money is held.

Question 17

What should you do with payments from the legal aid agency?

Answer 17

These can be taken in to business accounts, however cannot keep indefinitely and should be used to make required payments

Question 18

Exception in 2.2

Answer 18

???

Question 19

What does Rule 2.4 say?

Answer 19

client money is available on demand

Question 20

What does Rule 2.5 say?

Answer 20

client money should be returned promptly when there is no reason to keep it

Question 21

What happens where the firm received mixed funds? - mixture of payment of bills and money on account

Answer 21

Rule 4.1 - must allocate appropriately

Question 22

When can client money be withdrawn?

Answer 22

In one of the following circumstances (rule 5.1)

(a) for the purpose it is being held
(b) following receipt of instructions from the client or the third party for whom the money is held; or
(c) on the SRA’s prior written authorisation or in prescribed circumstances.

Question 23

What does Rule 5.3 say?

Answer 23

Withdrawals may only be made from the client account for a client if there is sufficient funds held for that client - dont use other client’s money!

Question 24

How often must firms obtain bank statements and reconcile these with cash books and client ledger accounts?

Answer 24

Every 5 weeks

Question 25

What does rule 12 say?

Answer 25

If a firm has received client moneys during an accounting period it must
(a) obtain an accountant’s report for that accounting period within six months of the end of the period

(b) deliver it to the SRA within six months of the end of the accounting period if the accountant’s reports show a failure to comply with the rules

Must be prepared and signed by an accountant who is a member of a chartered accountancy body or who works for an auditor