Keeping client money safe is paramount. Regulated Law Firms must ensure that they adhere to SRA Rules on how they hold client funds. Holding money in client account facilitates legal transactions for the client but firms must take care not to stray into the territory of using the client account as a ‘banking facility’.
Rule 3.3 of the SRA account rules states that:
“’You must not use a client account to provide banking facilities to clients or third parties. Payments into, and transfers or withdrawals from a client account must be in respect of the delivery by you of regulated services.”
Why is this an issue?
Law firms are not regulated as banks to provide ‘banking facilities’, and do not apply the same controls as banks apply to money held for their customers.
It is not a proper part of everyday business or practice for solicitors to operate a ‘banking facility’, either to clients or to third parties.
In addition, using client account as a banking facility may also breach the following principles:
- uphold the constitutional principle of the rule of law, and the proper administration of justice: Principle 1
- in a way that upholds public trust and confidence in the solicitors’ profession and in legal services provided by authorised persons: Principle 2
- with independence: Principle 3
- with integrity: Principle 5
What are the key considerations?
You must ensure that funds are only received into your client account where there is a ‘proper connection’between receipt of the funds and the delivery by you of regulated services.
It is important to note that it is not sufficient that:
- You are acting for the client; or
- That there is an underlying transaction.
There must be a proper connection between the delivery by you of regulated services and the payments you are asked to make and/or receive.
At the risk of stating the obvious, it is not enough to say that you made or receive payment for the client’ s convenience, or at the client’s request. The SRA state in their warning notice:
‘The client’s convenience is not a legitimate reason, nor is not having access to a bank account in the UK.’
Warning notice: SRA | Improper use of client account as a banking facility | Solicitors Regulation Authority
What can Firms do?
How can you satisfy yourself that there is a ‘proper connection’ between the services you are providing and processing funds? This depends on the facts of the case, and the SRA case studies (Case studies: SRA | Improper use of client account as a banking facility | Solicitors Regulation Authority) are helpful in assisting with key considerations.
Some of the factors that you can consider when making the assessment of ‘proper connection’ include:
- The reason why your firm is asked to receive, hold and/or make payments.
- Ask yourself why the client not make or receive the payments directly.
- Are the services you are providing normal for a Solicitor to provide?
- Are you being asked to make payments to others not connected with the transaction? e.g. family members or sister companies. Such payments should raise alarm bells.
If in doubt, speak with your COLP or outsourced Compliance service.
At zest. we work collaboratively with our law firm clients to navigate the SRA rules and to ensure our partners are supported with all their compliance and regulatory needs.
