Solicitors Accounts: SRA Accounts Rules pt.2 Flashcards
**Topic** - What is Client Money? - Rule 2.1 - Client Account and payments in - Withdrawals from client account and transfers
What four types of money does Rule 2.1 define as ‘client money’?
- Relating to regulated services delivered to a client
- On behalf of third party in relation to regulated services delivered by authorised body
- As a trustee or holder of a specified office or appointment (carrying specific solicitor role)
- In respect of your fees and any unpaid disbursements
What does the SRA Glossary define ‘regulated services’ as?
Legal and other professional services a body provides that is regulated by sRA
What are examples of third parties who send money to authorised body in relation to regulated services?
Money held as agent, stakeholder or held to third party’s order
Has money that already been paid by the client to the solicitor ‘client money’?
No - it has to be unpaid to be ‘client money’
What does the SRA Glossary define ‘fees’ as?
Your own charges or profit costs (including any VAT
element)
What does the SRA Glossary define ‘client’ as?
The person whom you act for
What does the SRAa Glossary define ‘disbursements’ as?
Any costs or expenses paid or to be paid to a third party on behalf of the client or trust (including any VAT
element)
Except office expenses such as postage and
courier fees
What does the SRA Guidance: ‘Do I need to operate a client account?’ generally define or summarise ‘client money’ to be?
Money of any currency that is received and held by a firm when they are providing legal services
What are some examples of types of client money?
- Client damages received by a firm in a personal injury matter
- Mortgage money received from lender on behalf of client
- Money held to pay nursing home fees
- Money for firm’s fees receiving before bill has been sent to client for those fees
What is ‘non-client money’ referred to as in the SRA Glossary and Rule 4.1, despite having no definition in the SRA Accounts Rules?
SRA Glossary - ‘mixed payments’
Rule 4.1 - ‘money belonging to the authorised body’
What is the category of money in the following scenario?:
Client has instructed you on purchase on property; has no client money held for him; body pays Land Registry fees out of firm’s business account; client sends cheque to reimburse you for the fees
Non-client money - it belongs to the authorised body because it is money received by them in respect of a paid disbursement
Where does Rule 3.1 obligate client accounts must be maintained?
At a branch or head office of a bank/building society in England and Wales
What are the two details the name of client accounts must include according to Rule 3.1?
a) the name of the authorised body
b) the word ‘client’ to distinguish it from other accounts held by authorised body
What must client accounts not be used for?
Providing banking facilities to clients or third parties
What must payments into, transfers and withdrawals from a client account be made in respect of?
The delivery of regulated services by the authorised body
Does the ‘client account’ belong to the client?
No
What is the time frame Rule 2.3 obliges client money to be paid into a client account?
‘Promptly’
What are the 3 exceptions to Rule 2.3 when obliged to pay client money into a client account within the stated time frame?
a. Money held in specified office/appointment e.g., trustee, donee of a power of attorney etc.
b. If client money represents payments from the Legal Aid Agency
c. If you agree an alternative arrangement in writing for whom the money is held not to hold money in client acc
Is it logical for money held representing payment from Legal Aid Agency to be treated as client money?
No
Why does money held in the office/appointment of a specific position not need to be in a client account within the standard time frame?
May conflict with regulations under rules relating to that specified appointment
How does Rule 2.2 instruct client money should be held when the authorised body does not have a client account?
- The only client money the body holds and receives in regarding their fees and unpaid disbursements before a bill is sent
- Any client money held for disbursements related to costs incurred by body on half of client and for which the body is liable
- Body does not maintain a client account
What condition can an authorised body not be required to hold client money in a client account following the satisfaction of one of the Rule 2.2 circumstances?
They must have informed their client in advance of where and how the client money will be held
What does Rule 2.5 say when there is no longer a proper reason to hold onto client money for authorised bodies who hold client money but not in a client account?
Needs to be returned promptly
What does Rule 8.1(a) say in respect of a ‘client ledger’ for authorised bodies who hold client money but not in a client account?
The body should keep accurate records showing receipts and payments of client money in a client ledge
What does Rule 4.3(a) say about what an authorised body must do if some of the client money that isn’t a client account will be used to pay some of their costs?
The client must be given a bill or another written notification of costs
What rules do not apply according to Rule 2.2, where client money is not held in a client account?
- Client money doesn’t have to be paid promptly (Rule 2.3)
- Client money doesn’t have to be kept separate from authorised body’s money (Rule 4.2)
- Client money doesn’t have to be available on demand (Rule 2.4)
- No requirement for body to obtain and deliver accountant’s report (Rule 12)
How does Rule 6.1 oblige authorised bodies to deal with breaches/improperly held/withdrawn client money?
It must be paid immediately into the account or replaced as appropriate
What does Rule 7.1 say must be done with interest gained on client money?
Authorised body must account to clients or third parties for fair sum of interest on client money held on their behalf
Where should non-client money i.e., authorised body’s money be paid into?
Business account
What type of money is held in an authorised body’s business account?
Non-client money i.e., money belonging to the authorised body
How does Rule 4.2 oblige funds from mixed payments is to be dealt with and within what time frame?
Funds should be allocated and divided to the correct client or business account
Promptly
Why does Rule4.2 acknowledge or accept that mixed payments are allowed to be made into either the client or business account?
Because clients may not appreciate the need to keep the two separate
What is an example of a client sending mixed payments into either a business or client account?
Money to pay a bill for work done (non-client) and
Money on account of costs for another matter that client has instructed you on (client money)
What does ‘on account of costs’ mean?
When a client pays money towards legal costs before work is complete
What are ‘separate designated client account(s)’?
Additional client bank accounts for holding individual client’s money in
How does Rule 4.1 instruct authorised bodies to keep client money and non-client money?
Client money should be kept separate from non-client money
What are the three conditions Rule 5.1 provide for withdrawing client money?
a) For the purposes of it being held
b) Following receipt of instructions from person money is held for (client or third party)
c) SRA’s prior written authorisation or in prescribed circumstances
What is the only ‘prescribed’ circumstance SRA allows for the withdrawal of client money according to Rule 5.1(c)?
Withdraw client account balance of less than £500 on any one client matter provided its paid to charity of authorised body’s choice
The body needs to meet the conditions set out
Why are there ‘designated client accounts’?
Because all clients’ money is held together in one client account
The ‘designated client account’ allows clients money to be separate
TRUE OR FALSE
Rule 5.3 states that you can only withdraw client money from client account if there is a minimum of £500 held on behalf of the person it’s held for (i.e., the client or third party)
False
You can only withdraw if SUFFICIENT FUNDS held on behalf of the person it’s held for, otherwise you would be withdrawing another client’s money
Which other three rules, excluding Rule 5.1 3 conditions, give rise to lawful withdrawals of client money from client account?
- Rule 2.5 - when there’s no longer a proper reason to hold funds (withdrawing the funds and sending them to client)
- Rule 4.2 - non-client money mixed with client must be withdrawn and transferred out
- Rule 4.3 - money can be transferred out of client account to pay your costs
How can the funds which are no longer needed for proper reason be given back to client under Rule 2.5?
Sent back to client by cheque or transferred to them
What conditions must be met in order for money in client account to be withdrawn and transferred out to pay a ball of costs under Rule 4.3?
- Bill must be given to client before transfer
- Only the specific sum identified in bill is transferred
- Client has sufficient money held on their behalf to cover the payment
