SRA Account Rules

Question 1

What do you do if client money is lost or take?

Answer 1

You/the firm must report this breach to the SRA promptly - even where you/the firm have already replaced the money.

Question 2

What are the risk outlook recommendations for you/the firm regarding controls?

Answer 2

Vital to have good accounting systems in order to protect client money.
Firms must:
- vet, train and supervise staff
- make sure everyone knows their responsibilities to keep client money safe;
- have business succession plan and contingency plans for accounting staff
- have systems for good account management and audit;
- have strong IT systems with good backups;
- reconcile accounts that are signed off by the compliance officer for finance and administration at least every 5 weeks;
- not allow the client account to be used as a banking facility ;
- engage with SRA about any concerns

Question 3

What are the consequences for mishandling accounts?

Answer 3

SRA may refer to the SDT (solicitors disciplinary tribunal) for serious sanctions including striking off the roll if they have been dishonest.

Question 4

Who is responsible for keeping client money safe?

Answer 4

All solicitors.

Question 5

Who do the SRA account rules apply to?

Answer 5

Authorised bodies, their managers and employees.

Authorised bodies: bodies authorised by the SRA to practice as either bodies licensed by the SRA or bodies recognised by the SRA.

Managers: sole principal in a recognised role practice; members of an LLP; directors of a company; partners in a partnership; or any other body - a member of its governing body.

Question 6

Who is responsible for compliance with the SRA Account rules?

Answer 6

Authorised body’s managers are jointly and severally responsible for compliance with the rules by the authorised body, its managers and its employees.

Question 7

What is the structure of the SRA Accounts Rules?

Answer 7

13 Rules, 4 sections.

1. Application (1)
2. Client money and client accounts (2-8)
3. Dealings with other money belonging to clients or third parties (9-11)
4. Accountants reports and storage and retention of accounting records. (12-13)

Question 8

What must be done if at any time during an accounting period you have held or received client money or operated a joint account or a client’s own account as signatory?

Answer 8

1. obtain an accountant’s report for that accounting period within six months of the end of the period; and
2. deliver it to the SRA within six months of the end of the accounting period IF the report is qualified to show a failure to comply with the account rule so that money belonging to clients or third parties is or has been or is likely at risk.

Question 9

What must authorised bodies do within six months of the end of the accounting period if they deal with client money in some way?

Answer 9

They must obtain an accountant’s report within six months of the end of the accounting period to which the report relates.

Question 10

When should the accountant’s report be delivered to the SRA?

Answer 10

Only when it is qualified.

This means it shows a failure to comply with the SRA Accounts Rules so that the client’s (or third party’s) money is/has been/is likely to be at risk.

Note: very minor breaches do not need to be reported

Question 11

What is a qualified accountant’s report?

Answer 11

Factors that the SRA would expect to lead to a report being qualified:
- a significant and/or unreplaced shortfall on a client account unless caused by bank error and rectified promptly
- Actual or suspected fraud or dishonesty by the managers of the firm
- Accounting records not available or bank accounts/ledgers failing to include reference to a client
- Client account bank reconciliations not being carried out
- The client account improperly used as a banking facility.

Question 11

When can the SRA require an accountant’s report?

Answer 11

SRA can require an authorised body to obtain or deliver an accountant’s report to the SRA on reasonable notice if:

• the authorised body has ceased to operate as an authorised body and to hold or operate a client account (i.e. final report)
• if the SRA thinks it is in the public interest to do so.

Question 12

What are the two exemptions from the requirement to obtain an accountant’s report?

Answer 12

1) Where all of the client money held or received during an accounting period is from the Legal Aid Agency (but could be required if SRA requests - 1) ceasing to act as authorised body and operate client account 2) in public interest)

2) During the accounting period the average balance on its client accounts does not exceed £10,000 AND the maximum balance does not exceed £250,000 (but could still be required to)

Question 13

What form must the accountant’s report take?

Answer 13

Accountant needs to be both a member of a chartered accountancy body AND work for or be a registered auditor.

Report must be in the form prescribed the SRA.

Question 14

When can the SRA disqualify an accountant from preparing a report?

Answer 14

Where:
- found guilty by their professional body for professional misconduct
- SRA is satisfied the accountant has failed to exercise due care and skill in the preparation of a report

SRA may specify matter which need to be incorporated into the terms on which an accountant is engaged.

Question 15

What information must be provided to the accountant?

Answer 15

• details of all accounts
• all other information and documentation that the accountant requires to enable completion of their report.

Question 16

How long must all accounting records be stored?

Answer 16

Must store all accounting records securely and retain them for at least 6 years.

Question 17

What are accounting records for SRA purposes?

Answer 17

Include:
- bank and building society statements
- accountant’s reports
- client’s written instructions to hold client money other than in accordance with SRA rules
- records relating to third party managed accounts
- any other records or documents necessary to show compliance with the SRA Accounts Rules.

Question 18

Is a joint account a client account?

Answer 18

It is not a client account but money held in a joint account is still client money.

Joint account allows solicitor/authorised body to operate and manage the account and money in it along with another person. E.g. when a firm’s solicitor is named as a joint executor with a lay person on the administration of an estate.

Question 19

How can a solicitor mitigate risks associated with joint accounts?

Answer 19

Obligation regarding money in joint accounts to make sure that you safeguard money and assets entrusted to you by clients and others.

Risks can be higher than if money is held in the firm’s client account.

Should mitigate those risks eg making sure the joint account has a joint signature mandate.

Question 20

Which SRA Account rules apply to joint accounts?

Answer 20

Rule 1 - who the accounts rules apply to

8.2 - obtain, every 5 weeks, statements from banks etc for all client accounts and business accounts

8.4 - keep readily accessible a central record of all bills or other written notifications of costs given by you

12.1 - requirement to obtain accountant’s report unless one of the 2 exceptions is met.

13.1 - accounting records (bills and bank statements) need to be kept securely and retained for at least 6 years

Question 21

What SRA rules apply if you operate a client’s own account as a signatory?

Answer 21

Rule 1 - who the accounts rules apply to

8.2 - obtain, every 5 weeks, statements from banks etc for all client accounts and business accounts

8.3 - every 5 weeks complete a reconciliation of the bank/building soc statements balance for the account with the cash book balance and client ledger total

8.4 - keep readily accessible a central record of all bills or other written notifications of costs given by you

12.1 - requirement to obtain accountant’s report unless one of the 2 exceptions is met.

13.1 - accounting records (bills and bank statements, reconciliations) need to be kept securely and retained for at least 6 years

Question 22

What is a third party managed account?

Answer 22

TPMA must be:
- regulated by the FCA
- an authorised payment institution/EEA authorised payment institution which has adopted voluntary safeguarding arrangements to the same level as an authorised payment institution;
- an account at a bank/building society
- operated as an escrow payment service (the third party receives and disburses money on your and your client’s behalf); and
- the monies in the TPMA must be owned beneficially by the third party

Question 23

Do you have to obtain an accountant’s report for third party managed accounts?

Answer 23

No.

But still need to store records securely for at least 6 years.

Question 24

Is money held in a TPMA client money?

Answer 24

No as it is not held or received by you. Therefore does not have to be held in accordance with the SRA Accounts Rules relating to the holding of client money.

Question 25

What must you do to ensure the TPMA complies with the SRA?

Answer 25

• Authorised body has to ensure that the use of the TPMA does not result in the receiving or holding the client’s money
• The authorised body must take reasonable steps to ensure the client is informed of and understands:
  1. their rights and obligations and what use of the TPMA means in their case including any charges or fees
  2. their right to terminate the agreement and dispute payment requests you make.
• Authorised body must obtain regular statements and ensure these reflect transactions on the account correctly.

Question 26

Do you need the SRA’s permission to use a TPMA?

Answer 26

No. But the SRA should be notified if a TPMA is being used (TPMA form).

If more than one TMPA provider is being used, SRA should be notified of all providers or if the authorised body stops using a TPMA provider so they can update their records.

Question 27

What is client money?

Answer 27

Client money is money held or received by an authorised body:

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 (money held as agent, stakeholder or held to the sender’s order)

c) as a trustee or as the holder of a specified office or appointment such as donee of a power of attorney, Court of Protection deputy or trustee of an occupational pension scheme;

d) in respect of fees any unpaid disbursements if held or received prior to delivery of a bill for the same.

Note: money held or received in relation to a paid disbursement is NOT client money.

Question 28

What is non-client money?

Answer 28

Money that is not client money.

Question 29

What if there are insufficient funds to pay a whole bill from the client account?

Answer 29

You should only withdraw client money from a client account if sufficient funds are held on behalf of that specific client or third party to make the payment.

If insufficient funds in the client account you should pay out of the business account.

Question 30

How must client money be held?

Answer 30

It must be kept separate from money belonging to the authorised body.

Must be at a bank or building society within England and Wales.

Question 31

What should the client account be called?

Answer 31

Name should include:

• name of the authorised body (law firm)
• the word ‘client’ to distinguish it from any other type of account held or operated by the authorised body.

Question 32

What kind of payments can be made into a client account?

Answer 32

Any payments in, withdrawals from or transfers of money must be made in respect of the delivery of legal services to the client.

Cannot be used to provide banking facilities to clients.

Question 33

How soon should money be paid into the client account?

Answer 33

When client money is received it should be paid into the client account PROMPTLY.

Three exceptions:

1) money held as trustee or holder of specified office or appointment (Court of Protection deputy or trustee of occupational pension scheme) - does not have to if conflicts with obligations under rules or regulations relating to your specified office or appointment.

2) if the client money represents payments from the Legal Aid Agency for your costs - does not have to be paid into client account (logical)

3) if you agree in the individual circumstances an alternative arrangement in writing with with client or third party for whom the money is held not to hold the money in the client account. - should keep record

Question 34

What if the firm doesn’t have a client account?

Answer 34

Applies where:

• the client money is only advance payments for fees and unpaid disbursements for which you are liable eg. counsel or expert fees (but not SDLT or others for which client is liable)
• client has been properly advised and is given sufficient information about where their money will be held (eg money not held on account for them or ring fenced)
• Client can then make an informed decision

Question 35

Do any Accounts rules apply where money is not held in client account for client (2.2)?

Answer 35

• Client money needs to be returned promptly as soon as there is no longer any proper reason to hold the money
• The authorised body must have given the client a bill or other notification of costs if it is to be used
• Should keep accurate records showing receipts and payments of client money in a client ledger

DOES NOT:
- no need to pay promptly
- does not need to be available on demand
- doesn’t need to be kept separate
- no need for interest
- no need for cash book or list of balances in ledger (although still ledger)
- no need to obtain and deliver an accountant’s report

Question 36

What happens if any money is improperly withdrawn or withheld from client account?

Answer 36

Money must be immediately paid into the client account.

Question 37

What about interest?

Answer 37

Must account to clients or third parties for a fair sum of interest on any client money held by you on their behalf.

Question 38

Where should non-client money be paid?

Answer 38

It should be paid into the business account

Question 39

What kind of money is money sent after the authorised body has paid for costs (no bill delivered)?

Answer 39

If already paid for costs, you can pay any money you receive from the client to reimburse you for these costs straight into the business account without having to issue a bill to the client.

The money received is for a paid cost not an unpaid one as is non-client money.

(Client should have been made aware of these costs)

Question 40

What kind of money is money sent after a bill for fees has been delivered?

Answer 40

Non-client money and can be paid into the business account.

Question 41

What kind of money is money sent after a bill for unpaid costs/expenses has been delivered?

Answer 41

Once a bill has been sent to the client, money received from the client in full or partial reimbursement of any costs/expenses not yet paid is non-client money and can be paid into the business account.

Question 42

What if a client sends a lump sum of mixed client and non-client money?

Answer 42

• Can get the bank to ‘split’ the cheque into the different accounts
• Paid into either account and then promptly moving the other part into the correct account

Question 43

How quickly must client money be paid into a client account?

Answer 43

Promptly

Question 44

Can client money be paid into the authorised body’s business account?

Answer 44

Yes, if it is part of a mixed payment and is then promptly moved out of the business account and into the client account.

Question 45

When can you withdraw money from a client account?

Answer 45

• For the purpose for which it is being held e.g. court fee
• following the receipt of instructions from the client or third party for whom the money is held e.g. instructions to send deposit for exchange of contracts
• on the SRA’s prior written authorisation or prescribed circumstance - only prescribed circumstance: withdraw residual account balances of less than £500 on any one client to be paid to charity AND met conditions for this.

NOTE: all withdrawals need to be authorised and supervised

Question 46

What should be done if there is no reason to hold the funds anymore?

Answer 46

Should withdraw funds from the client and send them to the client. PROMPTLY