Client money

Question 1

How does the SRA go about achieiving that client’s money are kept safe?

Answer 1

Rule 4.1 states that you, whom SRA Account Rules apply to must keep client money seperate from money belonging to the authorised body.

Question 2

How do you define client money?

Answer 2

As outlined in Rule 2.1, it is money held or received by you (authorised body):
a) relating to regulated services delivered by you to a client
b) on behalf of a third party in relation to regulated services delivered by you
c) as a trustee or as the holder of a specified office or appointment (power of attorney)
d) in respect of your** fees and any unpaid disbursements** if held or received prior to delivery of the bill.

(b) maybe an instance where you are working for the seller and receive deposit from buyer’s solicitor.

Question 3

Define regulated services?

Answer 3

The legal and other professional services you provide that are regulated by the SRA.

Question 4

Provide examples of client money said by the SRA?

Answer 4

• Client damages received by a firm
• Mortgage money received from a lender on behalf of the client
• Money held to pay nursuing fees for a client
• Money for the firm’s fee and any unpaid expert fees, that have been received before a bill had been sent to client for those fees.

Question 5

How would you define non-client money?

Answer 5

As there is no definition, it is money received and held by you which does not fall within Rule 2.1 and so is not client money.

Question 6

What does Rule 5.3 say?

Answer 6

Should only withdraw client money from a client account if sufficient funds are held on behalf of that specific client or third party to make the payment.

Question 7

Rule 3 is about maintaining a client account, what does it say?

Answer 7

• 3.1: maintain a client account at a branch of a bank or building society in England & Wales
• ** 3.2**: ensure that name of client account includes a) name of authorised body, and b) the word ‘client’ to distinguish it from other types of account held and operated by the authorised body.
• ** 3.3**: must not use client account to provide banking facilities to clients or third parties - so payment into, transfers and withdrawals from client account must be in respect of delivering a regulated service.

NOT a bank account belonging to client but a client bank account belonging to that law firm

Question 8

Rule 2.3 regarding payments into the client account says?

Answer 8

With few limited exception, that a client money is paid promptly into client account.

Question 9

What are the three exceptions to Rule 2.3?

Answer 9

a) money is held **as a trustee or as the holder **of a specified office or appointment - requires authorised body to set up a separate client account so it is separate from non-client money and money belonging to other clients of the firm.
b) if client money represents payments from Legal Aid Agency for your costs (‘fees & disbursements)
c) if you agree in the individual circumstances an alternative arrangement in writing with the client or third party, for whom the money is held not to hold money in client account.

Question 10

What is Rule 2.2 about?

Answer 10

It is a way of holding client money when the authorised body does not have a client account so cannot comply with Rule 2.3.

Applies where:
* only client money, the authorised body holds/receives is in respect of their costs, prior to delivery of a bill and
* any money held for disbursements relates to costs and expenses incurred by the authorised body on behalf of the client for which authorised body is liable (e.g., expert fees), and
* the authorised body does not maintain a client account.

Authorised body is not required to hold client money in a client account provided they have informed client in advance of where and how the money is held - client then can make an informed decision about whether they wish their money be held outside client account or consider other alternatives (third part managed account).

Question 11

What does Rule 2.5, 4.4(a) and 8.1(a) say?

Answer 11

• Rule 2.5: client money needs to be returned promply as soon as there is no longer any proper reason to hold the money.
• Rule 4.3(a): authorised body must have given the client a bill or written notification of costs
• Rule 8.1(a): authorised body should keep accurate records showing receipts and payments of client money in a client ledger - regardless of where it is held of if firm has a client account

Rules above apply whether or not authorised body has a client account

Question 12

Which SRA Account Rules do not apply to Rule 2.2

Answer 12

• Rule 2.3: obligation to pay client money promptly into client account (as there is no client account).
• Rule 2.4: client money must be availible on demand
• Rule 4.1: client money being held separetly from money belonging to authorised body
• Other parts of 8.1 such as a list of balances need to be shown on client’s ledger account.
• Rule 12: obtaining and delivering an accountant’s report.

Question 13

Which Rule states that you must correct any breaches of the rules promptly upon discovery?

Answer 13

Rule 6.1: any money improperly withheld or withdrawn from client account must be immediately paid into the account or replaced as appropriate.

Question 14

What does Rule 7.1 say on interest on the client account?

Answer 14

You must account to clients or third parties for a fair sum of interest on any client money held by you on their behalf

Question 15

What does Rule 4.2 say?

Answer 15

Funds from mixed payments (client and non-client money) received must be allocated promptly to the correct client account or business account (non-client money).

Question 16

Examples of payment into the business account?

Answer 16

• money sent after the authorised body has paid for costs (no bill delivered) to reminburse you for these costs - pay money you receive from client into business account.
• money sent after a bill for the authorised body’s fees has been delivered
• money sent after a bill for unpaid costs/expenses has been delivered.

Question 17

What is the implicit in Rule 4.2

Answer 17

Acknowledgment that mixed payments can be made into one account either, the client or business account - in this case, you must promptly move the client money element into the client account under 4.2 and vice versa.

Authorised body will not be in breach of 4.1 (keep client and non-client money seperate) if this is done promptly.

Question 18

What is a separate designated client account?

Answer 18

Where authorised boides may open one or more additional client bank accounts, referred to as “seperate designated client accounts” each to hold an individual client’s money is - not practical if authorised body has lots of client so may only be done if individual client insists on this.

Rule 3 in maintaining a client account also applies to separate client accounts.

Question 19

What does 5.1-3 pertain to in the SRA Account Rules?

Answer 19

Making withdrawals from client account

Question 20

What does 5.1 state?

Answer 20

Sets out when you are allowed to withdraw money from client account:
a) purpose for which it is being held (e.g., court fees)
b) following receipt of instructions from client, or third party for whom money is held
c) on the **SRA’s prior written authorisation **or in prescribed circumstances.

F

for (c) the only prescribed circumstances is withdrawing residual client account balance of less that £500 on any one client matter provided the balance is paid to a chairty and conditions are met.

Question 21

What does 5.2 say?

Answer 21

Sets out duty to authorise and supervise withdrawal made from client account.

Question 22

What does Rule 5.3 say?

Answer 22

Requires sufficent funds to be held for that specific client or third party before making a withdrawal from a client account - since all clients’ money will be held together in account, 5.3 makes it clear that, withdrawal can only happen if that particular client has sufficient funds within the client account, otherwise you would be withdrawing another client’s money which is a breach.

Question 23

What does Rule 4.3 say on transfer to pay costs?

Answer 23

Where you hold client money and some or all of it will be used to pay your costs:
a) must give a bill of costs or other written notification of costs incurred to client,
b) must be done before you transfer any client money from account to make payment and
c) any payments must be for a specific sum identified in the bill of costs or other written notification of costs inccured.