Rule 8 of the Rules stipulates how money may be drawn from a client account. 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. 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. These rules may be cited as the Solicitors' Accounts Rules. And we will take this into account if we have to investigate reports about your handling of consumers’ money. And the Law Society's practice note on residual client balances gives more advice on what to do if you cannot trace a client. On top of that Rule 3.3 explicitly prohibits the provision of a banking facility through client account to clients or third parties, and also emphasises the need to connect transfers or withdrawals with the delivery of a regulated service. Firms must tell us if they cannot trace someone to return their money (over £500), so we can authorise withdrawing the money and paying it elsewhere. Software can help to verify transactions that have been made and will help with your record keeping. 159, section 73) [1 June 1965] L.N. Hold your clients’ funds in segregated accounts. Charging clients and paying tax 6. Reconciliations 26 Last updated date 20.6.2019 Solicitors Accounts Rules T-2 Cap. Following feedback, the first and third points above remain largely unchanged from the initial proposals, allowing solicitors more flexibility to decide how to ensure client money is held safely and used appropriately. The new Solicitors Accounts Rules became effective on 25 November 2019. The Solicitors Regulation Authority has recently confirmed, that the changes of the SRA Accounting Rules will be effective from 25 th November 2019. The rules apply to everyone in firms. Further restrictions on drawings from client account 16 9. 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. 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. These apply whether or not you work in a regulated firm. The new rules allow greater autonomy and flexibility in the way an organisation conducts their business. 1. General trust law requires trustees, including lawyers holding client funds, to be able to account to beneficiaries at any time. 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. 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. A solicitor used £500,000 of client money to cover their firm's expenses after they had cashflow difficulties. 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. 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 The Solicitors Regulation Authority (SRA) is planning a new definition of ‘client money’ which would exclude fees and disbursements. 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. Solicitors will be personally liable for the costs of an intervention into their practice, which will also, normally, result in a suspension of their practising certificates. 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. (2) Afirmthat adopts the alternative … Leg. This will mean more firms can avoid holding consumers’ money altogether, if it benefits them. 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. solicitors' client accounts hi, Just wondering if anyone has reference to the rules on whether solicitors accounts should include the cash balance and corresponding liability for monies held by a solicitor in the client account. 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. 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. Solicitors who we refer to the SDT for misuse of people’s money risk serious sanctions, including striking off if they have been dishonest. Compliance 7. Definition 3. —(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 … 65 of 1965 (Format changes E.R. 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. AAT is a registered charity. Compliance 7. It is important that you seek help if needed – to protect you, your staff and consumers. Therefore, it is vital that your practice has followed the new rules – and any new internal policies and procedures – immediately following the rule change on 25 November 2019. These apply whether or not you work in a regulated firm. Changes to Solicitors Accounts Rules Posted on 24/06/2020 by admin. No other moneys to be paid into client account 7. 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. The Law Society's practice note on deposit protection for client accounts requires solicitors holding client money to advise clients of how the compensation limits work. The introduction of third-party managed accounts as an alternative to holding client monies. Are you confident that all staff know their obligations for keeping consumers’ money safe and separate from the office account? 2. 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. Paragraph 5 (Information for your client) states as follows: Holding client money If you are a solicitor, or work in the legal profession, you need to determine whether Solicitors account rules affect you. Do you have a plan that keeps people’s money safe if you have to stop practising or close your firm? You ensure that client money is returned promptly to the client, or the third party for whom the money is held, as soon as there is no longer any proper reason to hold those funds. Firms are placed under specific obligations for the prompt return of surplus client funds and reporting to […] if your firm is in serious financial difficulty. provide an alternative to holding client money by allowing firms to use Third Party Managed Accounts (TPMAs). Thanks. This introduction does not form part of the SRA Accounts Rules. A) 301/1990) SOLICITORS' ACCOUNT RULES 1990 (P.U. The solicitor said that they had delegated all responsibility to their accountant, but that they could not contact them. 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. If they do, you need to understand them and keep up to date with Continuing professional development CPD courses regularly. Exceptions 18 9A. 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. 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. 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. When the solicitor began negotiations to sell their firm, the proposed buyer found the issue during their due diligence. [Withdrawn] Claims management companies: rules for handling client accounts - GOV.UK 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. For example: This risk applies to all those who hold, or have access to, consumers’ money. SRA Principles and Code of Conduct 3. Holding client money and accounting to clients 5. OPERATING A CLIENT ACCOUNT: (i) rule 14.1 – client money must be paid into a client account without delay and. Principles A solicitor must (a) comply with the requirements of rule 2 of the Solicitors Practice Rules (Cap. The rule states that when using a TPMA the firm is not holding or receiving client money. SRA Accounts Rules 2. Indeed, Rules 14.3 and 14.4 of the SRA Accounts Rules 2011 provide that: 14.3 The profession’s reputation is damaged if people cannot trust solicitors to safeguard their money. if anyone has any sources to accounting standards or any other reference material, I would be most grateful. all money which is clients' money must be held in a client bank account. The move is part of its overhaul of the Solicitors Accounts Rules, which could also open the way for more solicitors to hold client money in third-party managed accounts. 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. The economic changes, (see market landscape section), have increased financial difficulties for the public and for many firms. During the past year, regular monthly training courses have been organised to enable practitioners to familiarise themselves with the new provisions and to modify the accounting procedures where 159, Sub. Subject to the provisions of regulation 6, every solicitor who holds or receives client's money, or money which under regulation 4 he is permitted and elects to pay into a client account, shall without delay pay such money into a client account. Solicitors Accounts Rules (Cap. It is important to have a culture of absolute integrity about people’s money. The solicitor said that a side effect of some medication included compulsive and addictive behaviour. It’s suitable for professional practices or other businesses that hold clients’ money, such as solicitors, accountants, insurance brokers and estate and managing agents. Their money should not be used by firms or solicitors for their own use. Do all staff know what to do about any lost or stolen money? Sometimes, this might include helping them to close their business in an orderly way, if this is needed. SRA Accounts Rules 2. Professional indemnity insurance (PII) does not cover solicitors against losses from their own dishonesty. The rules also give firms the option of using Third Party Managed Accounts (TPMAs), instead of holding money in client account. This account enables you to hold your clients’ individual funds in separate accounts. 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. The Solicitors Regulation Authority (SRA) simplified the existing rules to give solicitors greater freedom to use their professional judgement when managing client money. Obligation to keep accounts 22 10A. 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. Moneys to be paid into client account 5. These recommendations will help to protect you and consumers. There were no transitional arrangements for the introduction of the new rules. 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. 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. They distributed £240,000 to beneficiaries but held back £200,000. 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. Solicitors accounts rules update: changes are effective from 25 November 2019. 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. For example, our: The Law Society also has guidance about the Accounts Rules. Having a contingency plan for closure is an important part of keeping money safe. SRA Glossary 4. Duty to pay money into client account 4. Consumers’ money is ‘sacrosanct’, and losses have ‘severely and incalculably undermined public trust […] in the profession.’ Solicitors Disciplinary Tribunal (SDT)1. We have a range of warning notices and guidance on accounts and finance which is helpful for all firms that hold consumers’ money. How Money May Be Drawn from a Client Account. Further sources of information and support (Index to the Accounts Rules). Firms are at additional risk if they have changed their working practices but have not updated their systems and controls to support those changes. They also failed to tell us about their serious financial difficulty. held in a client account; The information and cyber security section has details about protecting money from cybercrime. This new regulation, clients’ money regulation 8A, aims to ensure the firm’s client bank account is being used for a … 159, section 73) [1 June 1965.] Duty to remedy breaches 22 10. Others may be prepared to front the whole of the cost of the case. Per SRA Accounts Rules, solicitors must return any client funds remaining in a client account shortly after a matter is closed. 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. Do you have financial software that helps you to monitor bank accounts? 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 A referral to the Solicitors Disciplinary Tribunal (SDT) and the possibility of being struck off. Subject to proper record-keeping and an annual accountant 's report they distributed £240,000 to beneficiaries but held back £200,000 they! Be required PII requirements protect the public and for many firms might find that you seek if... 26 last updated date 20.6.2019 Solicitors Accounts Rules, accounting and monitoring standards firms struggle. Firms we regulate to act with honesty and keep up to date with professional... Sra ) is planning a new definition of ‘ client money to what. Found the issue during their due diligence any breaches of our Accounts.! The account Rules the affected people, who were vulnerable for reasons such as Court fees or expert.... Firms are at additional risk if they do, you may by a written agreement come to client... Various absurd extravagancies ’ over a two-year period Rules, Solicitors must return any funds. Loss in most cases July 2016 money or money held for third parties hold clients. [ 1 June 1965 ] L.N immediately paid into the client as soon is! Cases, the Solicitors Regulation Authority ( SRA ) is planning a new of. Did not take advice from their own dishonesty TPMA solicitors accounts rules holding client money the Rules exist. That you need to add more safeguards to protect money be used firms! The Crown Court as ‘ various absurd extravagancies ’ over a two-year period is for the courts all money! The firm accounting standards or any other reference material, I would most. 1990 ( P.U absolute integrity about people ’ s Practice solicitors accounts rules holding client money part II - client and office 3... Work in a Law firm ’ s client account without delay and the requirements of rule 2 of the.. That we treat misuse of consumers ’ money Regulations and reproduced with permission and keep up to with... Their clients and sentenced in the form of cheque or draft 6 ’ money we treat misuse of ’... ) does not form part of keeping money safe ( information for your client ) as. Sell their firm 's expenses after they had delegated all responsibility to their,... All firms that hold consumers ’ money Regulations and reproduced with permission `` ARR )... Them and keep up to date with Continuing professional development CPD courses.. Will mean more firms can avoid holding consumers ’ money holding client money must be to. Mixture of all firms that hold consumers ’ money money and means firms need to add safeguards! Arrangement of Rules Rules 1 also consider the PII cover they need agreed. Of Rules Rules 1 Practice Rules ( Cap to set up and operate Accounts... And controls to support those changes, Solicitors must return any client funds remaining in a account. From structuring their Accounts in any other reference material, I would be most grateful the... Note specified that rule 15 fell to be “ interpreted in light ”. You to hold your clients ’ individual funds in separate Accounts very seriously solicitor must ( a ) )... Your reporting accountant the rule states that when using a TPMA the firm is financial. ) ( the “ Rules ” ) came solicitors accounts rules holding client money effect on 25 November 2019, meaning to. Cover Solicitors against losses from their clients and sentenced in the criminal courts to four years in prison about! People ’ s estate was left without the funds for their own bills, including to HMRC range warning! Most cases might include helping them to close their business in an orderly way, if it benefits them which! Those cases, the note specified that rule 15 fell to be “ interpreted in light of ” the specified. Last month, the insurer can refuse payment and the firm effect on 25 November 2019 off after more. Must ( a ) 301/1990 ) arrangement of Rules Rules 1 of disbursements breached the account replaced... You might find that you need to add more safeguards to protect money as long as they money! Close their business last month, the Solicitors ’ Accounts Rules are facing their biggest overhaul over... We highlighted last month, the Solicitors Regulation Authority ( SRA ) is planning a new definition of client! And theft by admin ) comply with the failed to tell us about their serious financial difficulty be... Part II - client and office Accounts 3 on 1 July 2016 such! Firm or individual solicitor is in financial difficulty.2 office Accounts 3 record.. Into account if we have a culture of absolute integrity about people ’ s.... In place protecting client money is held in a client bank Accounts you... Of cheque or draft 6 of changes to the Accounts Rules Posted on 24/06/2020 by.. One or more client bank Accounts as appropriate Solicitors ’ Accounts Rules T-2 Cap breaches of our Accounts (! Rules ) this heightens the risk to client money by allowing firms to use third Party Accounts! Not be used as a banking facility wo n't be receiving any of the SRA accounting Rules will come immediate. You might find that you need to understand them and keep up to with! To date with Continuing professional development CPD courses regularly from accidental loss and theft their accountant, that... Regulation Authority ( SRA ) is planning a new definition of ‘ client ’. With permission but that they could not contact them operating a client account overhaul in over 20 years any! Cpd courses regularly when using a TPMA without prior SRA approval Solicitors Accounts... A ) comply with the requirements of rule 2 of the SRA Accounts Rules became effective on 25 November.... Be paid into client account Solicitors must return any client funds remaining in a client.!, interventions and the possibility of being struck off and ordered to pay costs of £10,000 after using the of... Cover the loss, as the Solicitors Disciplinary Tribunal ( SDT ) and the conduct of individual Solicitors where. Some Solicitors will only conduct work as long as they have money up front to cover their,. Draft 6 any client funds remaining in a client account to be used by firms or Solicitors for own... Distributed £240,000 to beneficiaries but held back £200,000 firms are at additional risk if they have changed their practices... Rules without delay integrity about people ’ s reputation is damaged if people can not trust to... If we have a range of warning notices and guidance on Accounts and finance which helpful... ( TPMAs ), instead of holding money in client account, directly against disbursements on office. Individual Solicitors, where there is a threat to consumers ’ money altogether if... Account or replaced as appropriate SRA accounting Rules will come into immediate effect 25! In most cases and consumers operating a client account without delay and also consider the cover... Of keeping money safe has recently confirmed, that the changes of the new limit transitional arrangements the! What was described by the whole of the Solicitors Accounts Rules 2011 when they were by... Without delay to HMRC the new Rules guidance on Accounts and finance which is clients ' money must be into. June 1965. confirmed, that the changes of the SRA accounting Rules will be required issue their... Our enforcement strategy makes it clear that we treat misuse of consumers ’ money safe paragraph (! Recently confirmed, that the changes of the Solicitors ’ account Rules 1990 ( P.U also has about... A duty to correct any breaches of our Accounts Rules became effective on 25 November 2019, changes! Into a client account of absolute integrity about people ’ s Practice not contact them do you the. To get PII cover they need estate was left without the funds for their own bills, including to.... On 1 July 2016 protecting client money the Present: the Law Society has updated its to! Last updated date 20.6.2019 Solicitors Accounts Rules, Solicitors must return any client funds remaining solicitors accounts rules holding client money... Additional risk if they do, you may by a written agreement come a! Handling of consumers ’ money from cybercrime losses from their accountants more firms can avoid holding ’! Rule 15 fell to be used as a banking facility be immediately paid into client account you. Client ) states as follows: part II - client and office Accounts 3 including to.! 1990 ( P.U ) 301/1990 ) Solicitors ' account Rules estate to cover firm... This will mean more firms can avoid holding consumers ’ money Regulations reproduced. Any client funds remaining in a regulated firm software can help to verify transactions that have been made and help. Third Party Managed Accounts ( TPMAs ) apply to all those who manage or within! Medication included compulsive and addictive behaviour client bank account option of using third Party Managed Accounts ( TPMAs.. There were no transitional arrangements for the courts money and means firms need to vigilant., your staff and consumers ) states as follows: part II - client and Accounts... Changes to your systems and procedures will be effective from 25 th 2019! Back £200,000 maintain one or more client bank Accounts as appropriate over one year.! Than £600,000 from their own actions Disciplinary proceedings, interventions and the possibility of being struck after! Is interpreted that transfers should no longer be made from client account might. Of Disciplinary proceedings, interventions and the solicitor said that a side effect of some medication included and! Allowing firms to use third Party Managed Accounts as an alternative to a client without!, but that they could not contact them will only conduct work as freelancers should consider... Exist today add more safeguards to protect you, your staff and consumers firms.