Regulatory and Compliance Training & Consultancy

Residual Client Ledger Balances: A Tougher Regulatory Approach by the SRA?

May 2018

A recent disciplinary outcome published by the Solicitors Regulation Authority (SRA) demonstrates what could be viewed as a new and tougher approach towards residual client ledger balances.

Usually, when talking about residual client ledger balance problems under the SRA Accounts Rules, we tend to think of residual balances as a collection of numerous client ledger accounts rather than in isolation. A recent matter considered by the SRA will make solicitors across England and Wales shudder.

The solicitor in question, a member of a large regional firm of solicitors, had acted for a long-standing client on a matter. The solicitor, acting on the client's instructions, agreed to send to the client a cheque made payable to a third party in the sum of £25,830.43 in October 2009. The cheque was not presented and after a period of time, the cheque was cancelled and reissued. This process was repeated a number of times between February 2010 and April 2013. None of the cheques were ever cashed. The solicitor left the firm in August 2016 at which time the balance still remained on the relevant client ledger account.

The SRA considered that the solicitor was in breach of Rule 14.3 of the SRA Accounts Rules 2011 by virtue of having failed to return the money to the client between October 2012 and August 2016. Additionally, the solicitor was found to be in breach of Rules 14.4 of the SRA Accounts Rules 2011 by failing to inform his client between October 2012 and February 2016 that the firm continued to hold money on behalf of the client.

The solicitor was rebuked by the SRA and fined £1,000 as well as having to pay the SRA's costs of £600. In reaching their decision, the SRA said that the conduct continued for an unreasonable period and persisted after the solicitor should have realised that it was improper. Further, the SRA found that the conduct was neither trivial nor justifiably inadvertent.

Conclusion

This matter highlights the importance of dealing with residual client ledger balances in a timely and appropriate manner. It will be of concern to many in practice, including Compliance Officers for Finance and Administration (COFA's), to note that a single instance of a breach of Rule 14.3 and/or Rule 14.4 of the SRA Accounts Rules 2011 is considered sufficiently serious by the SRA to warrant disciplinary action resulting in a fine of £1,000.

If your firm has an issue with residual client ledger balances, there are a number of ways in which Legal Finance Professionals can help your firm:

Read our article, Residual Client Ledger Balances and the COFA’s Reporting Obligations
Why not take part in our Residual Client Ledger Balances Workshop Webinar?
Have you considered using our Residual Client Ledger Balances Clearance Service?
Have you read our Residual Client Ledger Balances Guidance?
SRA Accounts Rules In-house Training ensures your staff understand the rules governing residual client ledger balances

Alternatively, contact Richard Lane by calling us on 0330 223 5346 or e-mail us at info@lfpro.co.uk.

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