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What can law firms do to make themselves more Accounts Rules compliant?

SRA Rule 3.3 (“You must not use a client account to provide banking facilities to clients...”) is still a main area of concern for many law firms and a focus point for the SRA. Here we explore some of the pitfalls that cause firms to fall foul of Rule 3.3.

Top tips to stay compliant

  1. Ask yourself whether the payment you’re about to make from the firm’s Client Account is part of the underlying transaction for which you are engaged. If it isn’t clear, question why the payment shouldn’t be made by the client personally and whether the firm is unwittingly providing a banking facility. (Rule 3.3).
  2. An example we’ve seen many times is where a client lives abroad and has engaged the firm to handle a conveyancing matter in the UK.  Once the property has been bought/sold, the client requests that any residual money be left in the law firm’s client account to pay the council tax, removal/storage company, carpet cleaners, housekeeping costs etc.  Legitimate enough, you might think, but against the rules unless specifically made part of the underlying transaction for which the law firm is retained.
  3. A more alarming example – and one which moves into money-laundering territory – is where the residual money is used to buy, for example, artwork or a car.  We have seen a case where the solicitor did not question the ethics of a request to purchase a car, the excuse being that the client intended to come over to the UK and wanted his own transport.  At the end of his “stay” a further request was made to sell the car and transfer the funds to a foreign bank account.
  4. If you’re a partner signing off the monthly bank reconciliations, make sure you understand how the reconciliation works. There should be three elements to it: (a) compare the bank statements against the balance recorded in your accounting records; (b) where they are not the same, question why that is and whether, for example, a receipt has gone unrecorded; (c) compare the reconciled balance against the total client ledger balance. (SRA Rule 8.3)
  5. Routinely review the client matter listing to check for any overdrawn or residual balances and investigate them straight away. (SRA Rules 2.5 and 5.3).  See whether your software will allow you to run a report showing the last ledger entries made.  If there are client matters where there have been no entries for a few months, these should be investigated as the matters might need to be closed and any residual funds returned to the client.

About the author

Claire Watkins

+44 (0)20 7556 1482
watkinsc@buzzacott.co.uk

Top tips to stay compliant

  1. Ask yourself whether the payment you’re about to make from the firm’s Client Account is part of the underlying transaction for which you are engaged. If it isn’t clear, question why the payment shouldn’t be made by the client personally and whether the firm is unwittingly providing a banking facility. (Rule 3.3).
  2. An example we’ve seen many times is where a client lives abroad and has engaged the firm to handle a conveyancing matter in the UK.  Once the property has been bought/sold, the client requests that any residual money be left in the law firm’s client account to pay the council tax, removal/storage company, carpet cleaners, housekeeping costs etc.  Legitimate enough, you might think, but against the rules unless specifically made part of the underlying transaction for which the law firm is retained.
  3. A more alarming example – and one which moves into money-laundering territory – is where the residual money is used to buy, for example, artwork or a car.  We have seen a case where the solicitor did not question the ethics of a request to purchase a car, the excuse being that the client intended to come over to the UK and wanted his own transport.  At the end of his “stay” a further request was made to sell the car and transfer the funds to a foreign bank account.
  4. If you’re a partner signing off the monthly bank reconciliations, make sure you understand how the reconciliation works. There should be three elements to it: (a) compare the bank statements against the balance recorded in your accounting records; (b) where they are not the same, question why that is and whether, for example, a receipt has gone unrecorded; (c) compare the reconciled balance against the total client ledger balance. (SRA Rule 8.3)
  5. Routinely review the client matter listing to check for any overdrawn or residual balances and investigate them straight away. (SRA Rules 2.5 and 5.3).  See whether your software will allow you to run a report showing the last ledger entries made.  If there are client matters where there have been no entries for a few months, these should be investigated as the matters might need to be closed and any residual funds returned to the client.
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