Do all staff know where to get help if your firm is in financial difficulty? The aim of the Solicitors Regulation Authority (SRA) being to simplify the Accounts Rules, with the rules shifting to a more 'principals-based' approach for compliance for holding client monies. cause great distress and inconvenience for them, their families and third parties. If they do, you need to understand them and keep up to date with Continuing professional development CPD courses regularly. The introduction of third-party managed accounts as an alternative to holding client monies. Charging clients and paying tax 6. The rules apply to everyone in firms. The SDT, however, noted that the solicitor should have sought help if this were the case and that they were competently conducting other parts of their business. Designated Client Account. There is an optional exemption in rule 2.2 whereby if the solicitor receives money from a client in payment of advance fees and disbursements (eg counsel’s fees) for which the firm is liable (rule 2.2(a)) and the firm does not for any other reason maintain a client account (rule 2.2(b)), such money can be paid into the office account. The Present: the Solicitors’ Account Rules 2011 H) as to the solicitor s Paragraph 5 (Information for your client) states as follows: The solicitor, who owned the firm, did not take advice from their accountants. The information and cyber security section has details about protecting money from cybercrime. The amendments to the Solicitors’ Accounts Rules (Cap. The new rules, 11.1, outline that Third Party Managed Accounts may be used, rather than using a traditional client account if the use of the account does not result in “you holding the clients’ money” and you inform the client of the arrangement. Further restrictions on drawings from client account 16 9. We are required by the Solicitors Account Rules to hold such client money for the purpose for which it has been provided and it is therefore necessary for it to be held in an instant access account. Rules 2.3, 2.4, 4.1, 7, 8.1(b) and (c) and 12 do not apply to client money held outside of a client account in accordance with this rule. According to the SRA client money rules there were over 140 reports of misuse of holding client money or assets each month during 2014 and pay outs from the compensation fund have totalled in excess of £100m over the last five years. It can often be a good acid test to see whether the client truly believes in their case. These apply whether or not you work in a regulated firm. Obligation to keep accounts 22 10A. On opening a client bank account, a firm must notify the bank in writing that: i. all money standing to the credit of that account is held by the firm as clients' money and that the bank is not entitled to combine the account with any other Any money improperly withheld or withdrawn from a client account must be immediately paid into the account or replaced as appropriate. When I started working on solicitors’ compliance assignments, way back in 2000, the 1998 Solicitors Accounts Rules had been in place for 2 years. Are you confident that all staff know their obligations for keeping consumers’ money safe and separate from the office account? They distributed £240,000 to beneficiaries but held back £200,000. 1. Rules 2.3, 2.4, 4.1, 7, 8.1 (b) and (c) and 12 do not apply to client money held outside of a client account in accordance with this rule. The new Rules will come into immediate effect on 25 November 2019, meaning changes to your systems and procedures will be required. General client account is a mixture of all client money. 159F Our Accounts Rules show how we expect firms to safeguard money held in a firm’s client account or other accounts that solicitors are signatory to. you are not required to hold this money in a client account if you have informed your client in advance of where and how the money will be held. for the purpose for which it is being held; following receipt of instructions from the, You appropriately authorise and supervise all withdrawals made from a, You correct any breaches of these rules promptly upon discovery. Under Part 2.2 of the client money reporting rules, a licensee is required to perform daily and monthly reconciliations of the amount of reportable client money that, according to its records, it is required to hold in a client money account against the amount of reportable client money it is actually holding in that account. This is interpreted that transfers should no longer be made from client account, directly against disbursements on the office account. 2. These new reforms were approved by the Legal Services Board (LSB) last year and are part of the Looking to the Future programme, allowing solicitors greater flexibility in how they work. These recommendations will help to protect you and consumers. 159 sub. Having a contingency plan for closure is an important part of keeping money safe. Our enforcement strategy makes it clear that we treat misuse of consumers’ money very seriously. This new regulation, clients’ money regulation 8A, aims to ensure the firm’s client bank account is being used for a … Consumers’ money is ‘sacrosanct’, and losses have ‘severely and incalculably undermined public trust […] in the profession.’ Solicitors Disciplinary Tribunal (SDT)1. Except as provided under Rule 7, no money shall be drawn from a client account unless the Council, upon an application made to it by the solicitor, specifically authorises in writing such withdrawal; see Rule 8 (1) of the Rules. SRA Glossary 4. They used much of this to pay their own bills, including to HMRC. This introduction does not form part of the SRA Accounts Rules. as soon as there is no longer any justifiable reason to retain those funds. Here's what you need to know about how to manage the client money you hold Solicitors' Account Rules 1990 ("SAR") 2. If your firm is or becomes a CASS medium or large firm holding client money equal to or over £1 million and/or assets equal to or over £10m, you must: complete a CMAR; make a director or senior manager responsible for CASS (CF10a or SMF18) Complete a monthly Client Money and Asset Return (CMAR) You must complete a CMAR via Gabriel every month. Accountant's Report Rules 1990 ("ARR") 3. Sometimes, this might include helping them to close their business in an orderly way, if this is needed. Rule 2.2 (a) provides that if the only client money you hold or receive falls within Rule 2.1 (d) above and - (a) any money held for disbursements relates to costs or expenses incurred by you on behalf of your client and for which you are liable, and (b) you do not for any other reason maintain a client account;You are not required to hold it in a client account if you have informed your client in advance … Instead, they delayed paying disbursements and used the money to cover their firm's costs for five years. This will mean more firms can avoid holding consumers’ money altogether, if it benefits them. The guidance arising out of Wood was formalized, and arguably extended, in Rule 14.5 of the Solicitors’ Account Rules 2011 which states: “You must not provide banking facilities through a client account. Rule 11 regarding third party managed accounts (TPMA) appears to offer an opportunity to firms to outsource the handling of ‘client money’ to a third party. The solicitor said that they did not realise that delaying payment of disbursements breached the Account Rules. CASS 7 : Client money Section 7.10 : Application and purpose 7 7.10.3A R 7.10.4 G 7.10.5 G 7.10.6 G 7.10.7 G Release 2 Dec 2020 www.handbook.fca.org.uk CASS 7/3 provisions of this chapter in respect of all suchmoneyand if it does so, this chapter applies as if all suchmoneyweremoneythat thefirm receives and holds in the course of or in connection with its No other moneys to be paid into client account 7. The new Solicitors Accounts Rules became effective on 25 November 2019. The SDT struck off the solicitor. Rule 18.3 permits such receipts to be placed into a client account in its entirety but all office and/or out-of-scope money must be transferred out of the client account into the office account within 14 days of receipt. Per SRA Accounts Rules, solicitors must return any client funds remaining in a client account shortly after a matter is closed. These apply whether or not you work in a regulated firm. Reconciliations 26 Last updated date 20.6.2019 Solicitors Accounts Rules T-2 Cap. A. [Withdrawn] Claims management companies: rules for handling client accounts - GOV.UK Rule 8 of the Rules stipulates how money may be drawn from a client account. Our checklist will help you to plan. A justifiable reason, for example, may include when a client requests that you hold onto money pending a decision that is yet to be taken, such as funds awaiting an investment decision. Others may be prepared to front the whole of the cost of the case. However, any final decision on this is for the courts. We investigate both open and closed firms, and the conduct of individual solicitors, where there is a threat to consumers’ money. A TPMA is an account held by a specific provider as an alternative to a client account. Duty to pay money into client account 4. The firm's insurer declined to cover the loss, as the solicitor had been dishonest. Rule 8 of the Rules stipulates how money may be drawn from a client account. Rule 4.3 in the draft SRA Accounts Rules 2018 states that where a firm is holding client money and some, or all, of that money will be used to pay the firm’s costs, the firm: must give a bill of costs, or other written notification, to the client or paying party; this must be done before any transfer from a client account is done; and Somewhat confusingly, however, the note specified that rule 15 fell to be “interpreted in light of” the note on Wood. Our guidance about financial difficulties lists other sources of help for financial and personal support, including: We have made it easier for firms to use TPMAs. 159, section 73) [1 June 1965.] 6.10.1 Where a practice unit holds money for or on account of a client and, having regard to the amount of such money and the length of time for which it or any part of it is likely to be held, it is reasonable that interest should be earned for the client, the practice unit shall as soon as practicable place such money or, as the case may be, such part thereof, in a separate interest bearing client account in the title of … At first glance, it seems as though the new guidance is simply a rehash of the old guidance, but there are quite a few elements to be aware of. These are receipts which include client money and office money/out-of-scope money (out-of-scope money is money that falls outside the scope of SRA regulation). CASS 7 : Client money Section 7.15 : Records, accounts and reconciliations 7 7.15.17 R 7.15.18 R CASS 7/6 www.handbook.fca.org.uk Release 2 Dec 2020 reconciliationto check whether itsclient money resource, as at the close of business on the previousbusiness day, was equal to itsclient money requirementat the close of business on that previous day. Client account money belongs to clients of the firm so if the firm becomes insolvent the bank cannot obtain the money held in that account. This account is agreed with and operated by the client and the firm. back to top ... No other money shall be paid into the client account. Rules 2.3, 2.4, 4.1, 7, 8.1(b) and (c) and 12 do not apply to client money held outside of a client account in accordance with this rule. These rules may be cited as the Solicitors' Accounts Rules. There were no transitional arrangements for the introduction of the new rules. The SRA has said that it expects most firms to carry on doing what they have always done when handling client money, at least to begin with. Holding client money and accounting to clients 5. A solicitor must keep client money separate from practice money in a client account with a recognised bank or building society and use that money only for each particular client purposes and to pay clients interest as specified. leg. Duty to remedy breaches 22 10. In the normal course of business, those excess funds must be returned to the client as soon as is possible. Whilst the majority of any funds held by the solicitor will be used during the course of the client’s retainer, some funds will inevitably be left over. Do you have financial software that helps you to monitor bank accounts? Authority required for drawing money from client account 16 8. The Present: the Solicitors’ Account Rules 2011. counsel’s fees) for which the firm is liable (rule 2.2(a)) and the firm does not for any other reason maintain a client account (rule 2.2(b)), such money can be paid into the office account. Some solicitors will only conduct work as long as they have money up front. This rule was concerned with money going into and out of client account but said nothing about using the client account as a banking facility. The rules also give firms the option of using Third Party Managed Accounts (TPMAs), instead of holding money in client account. We updated our guidance on closing down your practice and have further guidance on what to do if you are in financial difficulties that might mean you can no longer trade, including the support that we can offer. Charging clients and paying tax 6. Holding client money and accounting to clients 5. Critically, and as stated in the SRA guidance on TPMA’s: “Money held in a TPMA does not fall under the definition of client money in our Accounts Rules as it is not held or received by you. Clients’ Money Regulations – introduction of clients’ money regulation 8A A new clients’ money regulation came into effect on 1 January 2017. The Solicitors Regulation Authority has recently confirmed, that the changes of the SRA Accounting Rules will be effective from 25 th November 2019. Firms are placed under specific obligations for the prompt return of surplus client funds and reporting to […] The Solicitors Regulation Authority (SRA) simplified the existing rules to give solicitors greater freedom to use their professional judgement when managing client money. Firms are placed under specific obligations for the prompt return of surplus client funds and reporting to […] Solicitors that work as freelancers should also consider the PII cover they need. Professional indemnity insurance (PII) does not cover solicitors against losses from their own dishonesty. Based on ICAEW’s Clients’ Money Regulations and reproduced with permission. Subject to rule 9, every solicitor-trustee who holds or receives money subject to a trust of which he is a solicitor-trustee, other than money which is paid into a client account as permitted by the Legal Profession (Solicitors’ Accounts) Rules, shall without delay pay such money … These new reforms were approved by the Legal Services Board (LSB) last year and are part of the Looking to the Future programme, allowing solicitors greater flexibility in how they work. Under rule 14(3) of the SAR (Solicitors Accounts Rules), solicitors are obliged to return client money promptly, i.e. held in a client account; After a series of consultation phases over the past few years, the Solicitors Regulation Authority have now confirmed that new rules for solicitors on how to manage the client money they hold will come in to effect on 25 th November 2019. It is the responsibility of all firms and individuals we regulate to act with honesty and keep money safe. How Money May Be Drawn from a Client Account. In order to do this, you have to have recorded the money you received from each client, what money you disbursed for each client, and what the unexpended balance is for each client. Further sources of information and support (Index to the Accounts Rules). In accordance with the Solicitors Accounts Rules, it is the firm's policy to account to its clients for a sum of money in relation to interest earnt on any money held on behalf of a client at any time as part of the service we provide. Citation These rules may be cited as the Solicitors Accounts Rules. The solicitor used the money to fund what was described by the Crown Court as ‘various absurd extravagancies’ over a two-year period. In those cases, the insurer can refuse payment and the solicitor has to personally remedy the consequences of their own actions. For example, our: The Law Society also has guidance about the Accounts Rules. Indemnity insurance claims for lost money also make insurance premiums more expensive for all solicitors. The profession’s reputation is damaged if people cannot trust solicitors to safeguard their money. Solicitors who we refer to the SDT for misuse of people’s money risk serious sanctions, including striking off if they have been dishonest. SOLICITORS' ACCOUNTS RULES (Cap. Others ask for some money up front to cover any anticipated disbursements, such as Court fees or expert fees. Client accounts must be subject to proper record-keeping and an annual accountant's report. The new rules allow greater autonomy and flexibility in the way an organisation conducts their business. The SDT noted that it was the solicitor’s ‘ultimate responsibility’ and found that the solicitor’s actions had harmed trust in the profession. Solicitors Accounts Rules (Cap. Cyber crime seminarDECEMBER 16TH 2019 News & UpdatesSEE ALL Policy For Holding Client Funds This policy aims to clarify the position relating to the retention of client funds and the requirements imposed upon Firms under the Solicitors’ Accounts Rules 2011. We have a range of warning notices and guidance on accounts and finance which is helpful for all firms that hold consumers’ money. Principles A solicitor must (a) comply with the requirements of rule 2 of the Solicitors Practice Rules (Cap. (A) 301/1990) ARRANGEMENT OF RULES Rules 1. you are not required to hold this money in a client account if you have informed your client in advance of where and how the money will be held. This heightens the risk to client money and means firms need to stay vigilant about keeping money safe. SRA Principles and Code of Conduct 3. People and businesses trust solicitors to keep their money safe. Third Party Managed Accounts (TPMA) The rules allow the use of a TPMA without prior SRA approval. Client’s money in the form of cheque or draft 6. OPERATING A CLIENT ACCOUNT: (i) rule 14.1 – client money must be paid into a client account without delay and. You ensure that client money is available on demand unless you agree an alternative arrangement in writing with the client, or the third party for whom the money is held. If the sum in question is less than £50, then Rule 20.1(j) of the SRA Accounts Rules 2011 permits the money to be withdrawn from client account provided that the provisions set out in Rule 20.2 of the those rules are followed. The Solicitors Regulation Authority (SRA) simplified the existing rules to give solicitors greater freedom to use their professional judgement when managing client money. Not all of this money is held in a law firm’s client account. 159, Sub. You have a duty to correct any breaches of our Accounts Rules without delay. Their money should not be used by firms or solicitors for their own use. Do you apply the recommendations of your reporting accountant? The solicitors won't be receiving any of the interest themselves. Firms will need to have systems and controls in place to ensure compliance with these rules and the nature of those systems must be appropriate to the nature and volumes of client transactions dealt with and the amount of client money held or received. It is important that you seek help if needed – to protect you, your staff and consumers. Purpose 1. There are also some solicitors who have access to people’s personal bank account, for instance, those appointed as attorneys (under a power of attorney) or trustees. not allow the firm’s client account to be used as a banking facility. Code of Conduct for Solicitors, registered European lawyers (RELs) and registered foreign lawyers (RFLs), improper use of a client account as a banking facility, practice note on residual client balances, what to do if you are in financial difficulties that might mean you can no longer trade, Solicitors Regulation Authority v Cabeer Ahmed, Case No 12020-2019, Bellwether 2020: Covid-19 and the legal industry, 2020. They also failed to tell us about their serious financial difficulty. if your firm is in serious financial difficulty. SRA Principles and Code of Conduct 3. Solicitors' Accounts (Deposit Interest) Rules 1990 ("SADIR") Herein, collectively referred to as the Rules, unless stipulated otherwise. In short, if the money received or held has no connection with the provision of a regulated service, it is not client money and should not be in client account. As we highlighted last month, the Solicitors Accounts Rules are facing their biggest overhaul in over 20 years. 1050724 3. SRA Accounts Rules 2. General trust law requires trustees, including lawyers holding client funds, to be able to account to beneficiaries at any time. The rules apply to everyone in firms. Our Code of Conduct for Solicitors, registered European lawyers (RELs) and registered foreign lawyers (RFLs) has clear expectations that you must safeguard money entrusted to you. As a freelance solicitor doing reserved work, you can hold money for fees and disbursements so you need systems and checks to keep money safe too. You might find that you need to add more safeguards to protect money. There is an optional exemption in rule 2.2 whereby if the solicitor receives money from a client in payment of advance fees and disbursements (e.g. The Solicitors Regulation Authority (SRA) has dropped a new definition of ‘client money’ which would have excluded fees and disbursements in response to the concerns of practitioners, but is otherwise moving ahead with a huge rewrite of the accounts rules that reduces them from 41 pages to just seven. Solicitors accounts rules update: changes are effective from 25 November 2019. This is all highly regulated and solicitors are prohibited from structuring their accounts in any other way. This includes trust money or money held for third parties. SRA Accounts Rules 2. b. any lost or stolen money belonging to a client or third party, even where the money has been replaced, if you use a third-party-managed account (TPMA) (. This policy applies in relation to all UK and Ireland offices of firms and, subject to paragraph 37, to the Principals of such firms.A firm must receive or hold clients' money only in accordance with this policy. In these rules, unless the context otherwise requires-'client' means any person on whose account a solicitor holds or receives client's money; 'client account' means a current or deposit account at a bank in the In this scenario we must combine two of the new rules: 2.5 “you ensure client money is returned promptly to the client.” 5.1 (c) “You only withdraw client money from a client account on the SRA’s prior written authorisation or in prescribed circumstances” Both-of-these rules cover residual balances in full. It is unlikely that solicitors will be liable in negligence if client money is lost following the collapse of a deposit-taking institution, as long as solicitors have placed the money in accordance with the Solicitors' Accounts Rules. Solicitors Act 1974 permits Solicitors Firms to retain any interest earned on Client account held in a Client account over and above that which is required to be paid in accordance with the Solicitors Accounts Rules. Leg. No. On 25 November 2019, there was a series of changes to Solicitors Accounts Rules. You might need to update your staff training if your working practices have recently changed, as consumers’ money could be at higher risk. The rules apply to all firms we regulate, including all those who manage or work within such firms. Having reliable systems to verify that people’s financial details, ID and instructions are up to date and accurate will protect against both theft and accidental loss. Rule 14.3 states “Client money must be returned to the client (or other person on whose behalf the money is held) promptly, as soon as there is no longer any proper reason to retain those funds.” You keep and maintain accurate, contemporaneous, and chronological records to: record in client ledgers identified by the, maintain a list of all the balances shown by the client ledger accounts of the liabilities to, provide a cash book showing a running total of all transactions through, You obtain, at least every five weeks, statements from, You complete at least every five weeks, for all, You keep readily accessible a central record of all bills or other written notifications of, If, in the course of practice, you operate a, use of the account does not result in you receiving or holding the. Rules on how to set up and operate client accounts, including record-keeping, accounting and monitoring standards. Solicitors’ client accounts often support life-changing events, such as buying a house, planning for retirement, covering costs for care or setting up a business. A solicitor was struck off and ordered to pay costs of £10,000 after using the proceeds of an estate to cover their business expenses. The rules also give firms the option of using Third Party Managed Accounts (TPMAs), instead of holding money in client account. Thanks. (2) Afirmthat adopts the alternative … Our Accounts Rules show how we expect firms to safeguard money held in a firm’s client account or other accounts that solicitors are signatory to. The 'client account' is only used for holding client money and is completely separate to the 'office account' in which the solicitor's firm puts its own money. 1. any firm may maintain one or more client bank accounts as appropriate. 1. Firms can use a TPMA only if it will not result in the firm holding client money at any point, as long as the client is informed about it, and that you obtain regular statements to ensure accuracy. Although client money is still effectively safeguarded, the onus will now be on solicitors to agree their own principles, which should be set out in an internal procedures manual. Exceptions 18 9A. At least one person’s estate was left without the funds for their funeral. Misuse of people’s money has very serious consequences for solicitors, such as: Lost or stolen money is expensive and damaging for the whole solicitors’ profession. We engage with firms who struggle to get PII cover. provide an alternative to holding client money by allowing firms to use Third Party Managed Accounts (TPMAs). Are the appropriate checks being made to protect consumers’ money from accidental loss and theft? Further sources of information and support (Index to the Accounts Rules). AAT is a registered charity. A solicitor was struck off after stealing more than £600,000 from their clients and sentenced in the criminal courts to four years in prison. The rule states that when using a TPMA the firm is not holding or receiving client money. These rules stayed in place protecting client money until 2011 when they were replaced by the rules that exist today. A) 301/1990) SOLICITORS' ACCOUNT RULES 1990 (P.U. This Regulation substantially reflects Regulation 4 of the Solicitors’ Accounts Regulations 1998, other than at Regulation 13.2.5, which provides that in no circumstances money which does not relate to a current or ongoing matter or transaction may be held in or transacted through any client account. Where money is held in Client account interest must be accounted to the Client when Indeed, Rules 14.3 and 14.4 of the SRA Accounts Rules 2011 provide that: 14.3 The aim of the Solicitors Regulation Authority (SRA) being to simplify the Accounts Rules, with the rules shifting to a more 'principals-based' approach for compliance for holding client monies. Changes to Solicitors Accounts Rules Posted on 24/06/2020 by admin. Holding client money If you are a solicitor, or work in the legal profession, you need to determine whether Solicitors account rules affect you. —(1) Subject to rule 9, every solicitor who holds or receives client’s money, or money which under rule 4 he is permitted and elects to pay into a client account, shall without delay pay such money into a … The SRA has said that it expects most firms to carry on doing what they have always done when handling client money, at least to begin with. make sure everyone knows their responsibilities to keep consumers’ money safe, have a business succession plan and contingency plans for accounting staff, have systems for good account management and auditing, reconcile accounts that are signed off by the compliance officer for finance and administration or the manager of the firm at least every five weeks. ( PII ) does not cover Solicitors against losses from their own actions sources to accounting standards or any way! 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