Regulatory and Compliance Training & Consultancy

Recent Solicitors’ Disciplinary Tribunal Cases Highlight the Importance of Rule 14.5

May 2018

A review of recent SRA Accounts Rules related findings published by the Solicitors Disciplinary Tribunal clearly highlights the SRA‘s current key regulatory focus area, that is, Rule 14.5 of the SRA Accounts Rules 2011 which prohibits the use of a firm’s client bank account to provide a banking facility to clients.

In the last eighteen months we have seen an ever-increasing number of cases before the Solicitors Disciplinary Tribunal (SDT) where breaches of rule 14.5 of the SRA Accounts Rules 2011 have been central to the proceedings. In 2017, cases involving managers at leading firms such as Clyde & Co and Locke Lord have featured prominently in the legal press. More recently, a spate of cases at the SDT have only sought to highlight the extent and nature of the problem.

Perhaps the highest profile case of those recently considered by the SDT, involved the actions of Mr Langford, a Member of the firm of Howard Kennedy LLP until his retirement in 2011, at which point he became a consultant with the firm. The papers before the SDT outline that between July 2009 and January 2015, receipts and payments running to millions of pounds had passed through the Howard Kennedy LLP client bank account, where there was no underlying legal transaction underpinning either the receipt of the funds into the client bank account, or the subsequent payment out from client bank account. Despite concerns being raised internally in April 2012, about breaches of rule 14.5 of the SRA Accounts Rules 2011, it was not until February 2015 that these transactions were reported to the SRA.

The tribunal found that Mr Langford chose to ‘deliberately and knowingly disregard the instructions received to cease making payments’ and, by doing so, had ‘caused harm to the reputation of the profession’. The SDT ordered that Mr Langford pay a fine of £15,000 and the SRA's costs fixed in the sum of £24,300.

The firm itself was criticised by the SDT for failing to prevent the re-occurrence of further breaches of Rule 14.5 until February 2015, despite being aware of the issue by April 2012 at the latest. Additionally, the firm failed to notify the authorising partners that further payments should not be authorised, nor did it change or consider its systems, which the firm accepted were inadequate. The SDT described the firm‘s failings as being ’serious‘ and as having ’caused foreseeable harm to the reputation of the profession‘. The SDT ordered that Howard Kennedy pay a fine of £35,000 and the SRA’s costs fixed in the sum of £46,950.

The firm of Laytons LLP and the conduct of three members, Messers. Kelly, Burman and Selby, has also been subject to consideration by the SDT. Once again, the subject matter under consideration was the use of the firm‘s client account to provide a banking facility when no underlying legal matter underpinned the financial transactions. The financial transactions in question occurred over an extended period of time, dating back as far as March 1999 and continuing through to March 2017. This case is of particular interest, as there is no suggestion that the nature of the matters was in any way ’dubious‘. They were not. Two of the matters giving rise to the SRA’s concerns involved transactions related to the activities of a number of ‘special interest’ professional network groups, with which two of the members were involved and related to the fees and expenses connected with various meetings, conferences and training events organised by the members. The third matter concerned the payment of household expenses for a long-standing wealthy client of the firm. Laytons LLP were fined £20,000 whilst Messers. Kelly, Burman and Selby were fined £7,500, £5,000 and £2,000 respectively. Between them, the firm and the three members were ordered to pay the SRA's costs of just over £5,000 on a joint and several basis.

The final case we shall examine involving breaches of Rule 14.5 of the SRA Accounts Rules 2011, is that of Mr Sedgwick, a solicitor and consultant at Buss Murton Law LLP. This case centred around a number of dubious investment schemes involving carbon credit trading, a diamond investment scheme and the purchase of fine wines. In relation to each scheme, it was the SRA‘s contention that no underlying legal transaction existed, and that Mr Sedgewick had simply used Buss Murton Law LLP client bank account to provide an escrow facility. Mr Sedgwick was suspended from practice for a period of one year, ordered to meet the SRA’s costs fixed in the sum of £18,000 and made subject to conditions on his return to practice.

Rule 14.5 - What Lessons Have we Learned?

There can be little doubt whatsoever that the proper application of Rule 14.5 of the SRA Accounts Rules 2011 is the key focus of the SRA at the current time. In particular, the Laytons LLP case demonstrates an increasingly strict interpretation of Rule 14.5 by the SRA. This is a very high-risk area where all firms need to be paying particularly close attention to what is happening within their firms. It also highlights the importance of ensuring that all staff, not just finance staff, receive regular training on the proper application of the SRA Account Rules.

If you have any concerns or uncertainty about any aspect of your firm‘s compliance with the SRA Accounts Rules 2011, SRA Code of Conduct 2011 or Money Laundering Regulations 2017, our SRA Compliance Health Check Service will give you the peace of mind you need. Why choose Legal Finance Professionals? Our director, Richard Lane, a former senior manager in the SRA’s Forensic Investigation unit was responsible for the investigation and subsequent prosecution of the Wood and Burdett case which gave rise to Rule 14.5 of the SRA Accounts Rules 2011 and influenced the SRA‘s current regulatory approach to the use of a firm’s client bank account.

For more information about our bespoke in-house training courses or our SRA Compliance Health Check Service, please contact Richard Lane by calling us on 0330 223 5346 or e-mail us at info@lfpro.co.uk.

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