The Solicitor’s Accounts Rules set out that only money that is linked to an underlying legal service should go through a client account. There must also be a proper connection with those receiving those funds and the legal service the firm has provided.
It has been reminded by regulators that law firms cannot act as an effective bank account for any clients that want to have a safe place to hold funds. The solicitor’s regulation authority (SRA) is worried that there are many practitioners that are still continuing to do this despite repeat reminders and therefore they are risking misconduct proceedings and damage to the reputation of the profession
The restrictions are there to protect law firms from the risk of assisting money laundering, helping someone improperly hiding assets in a commercial or matrimonial dispute or helping someone avoid their obligations in insolvency proceedings. The SRA has also warned law firms about the risk of allowing firms’ client accounts to be used to add credibility to investment schemes that are questionable at best.
Law firms cannot justify processing money through the client account due to having a retainer with a client. The SRA also cautions against firms holding any funds to enable them to pay a client’s routine outgoings, for example, when based abroad. This is no longer justifiable with technological advances.
In the past year, the SRA has prosecuted 20 solicitors and three firms at the Solicitors Disciplinary Tribunal (SDT) for breaches in this area. Three solicitors lost their jobs with an additional two being suspended. The SDT also imposed £763,000 worth of fines which included the highest ever individual fine of £500,000.
Paul Phillip, the SRA Chief Executive, explained that “Law firms are not regulated to operate their client accounts as a banking facility for clients. They should not trade on their reputation to priced banking facilities, which can result in significant risks for the firm, as well as their clients and the wider public. Our rules are not intended to prevent usual practice in traditional work undertaken by solicitors such as conveyancing, company acquisitions, the administration of estates or dealing with formal trusts. Money passing through the client account can be entirely legitimate where there is a clear legal service being provided, but we will continue to take action against those who cannot justify their actions, put their clients at risk and undermine public trust in the profession”
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