Regulatory and Compliance Training & Consultancy

SRA Guidance improper use of a client account as a banking facility (Rule 14.5)

August 2018

The SRA have updated their guidance on the application of Rule 14.5 of the SRA Accounts Rules 2011 to assist firms in avoiding the improper use of their client account as a banking facility.

Anyone who has followed the glut of cases heard at the Solicitors Disciplinary Tribunal (SDT) over the last year or so will be well aware of the importance the SRA place on compliance with Rule 14.5 of the SRA Accounts Rules 2011. In the last year alone, the SRA have prosecuted twenty solicitors and three firms at the SDT. Three solicitors were struck off and two more suspended, while the SDT also levied £763,000 of fines, including the highest fine ever of £500,000, in relation to breaches of Rule 14.5 (see our related news item - Recent Solicitors’ Disciplinary Tribunal Cases Highlight the Importance of Rule 14.5).

Paul Philip, Chief Executive of the SRA, stated in a press release associated with the updated guidance note 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 provide banking facilities, which can result in significant risks for the firm, as well as their clients and the wider public”. He went on to add, “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.”

“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.”

The introduction of eleven case studies which really help to clarify the SRA's approach to the application of Rule 14.5 of the SRA Accounts Rules 2011 is most welcome and will help many firms to have a better understanding of what is expected of them by the SRA if they are to demonstrate compliance with these important provisions.

All eleven of the SRA's case studies can be accessed from the links below -

• Instructing foreign lawyers
• Holding unconnected money in a client account
• Development work and holding money
• Unconnected payments from client account
• Investment scheme and an “escrow” arrangement
• Trust administration work
• Commercial rent deposits
• Lasting powers of attorney
• Lack of availability of UK banking facilities
• Aggregated funds
• Collation of investment funds

Ensuring compliance with SRA Accounts Rules 2011 across a firm as a whole is never an easy thing to achieve. Obviously, it goes without saying, that it is in the best interest of the Compliance Officer for Finance and Administration (COFA) as well as the rest of the firm‘s managers to ensure that both finance staff AND fee earners understand properly the SRA Accounts Rules. With the SRA’s updated guidance highlighting the importance of avoiding the improper use of a client account by providing a banking facility to clients and the imminent introduction of the new SRA Accounts Rules, the next few months represents the ideal opportunity to provide in-house training for all fee earners and managers as well as your accounts staff. For more information about a bespoke in-house training course for your firm please contact Richard Lane by calling now on 0330 223 5346 or by e-mail to info@lfpro.co.uk.

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The full text of the SRA's updated guidance can be viewed here or downloaded as a PDF below:

SRA Warning Notice Improper use of a Client Account as a Banking Facility