SRA Accounts Rules 2013

Rule 13: Client accounts

If you hold or receive client money, you must keep one or more client accounts (unless all the client money is always dealt with outside any client account in accordance with rule 8, rule 9, rule 15 or rule 16).

A "client account" is an account of a practice kept at a bank or building society for holding client money, in accordance with the requirements of this part of the rules.

The client account(s) of:

a sole practitioner must be in the name under which the sole practitioner is recognised by the SRA, whether that is the sole practitioner's own name or the firm name;

SRA Accounts Rules 2013

a partnership must be in the name under which the partnership is recognised by the SRA;

an incorporated practice must be in the company name, or the name of the LLP, as registered at Companies House;

in-house solicitors or RELs must be in the name of the current principal solicitor/REL or solicitors /RELs;

trustees , where all the trustees of a trust are managers and/or employees of the same recognised body or licensed body, must be either in the name of the recognised body/licensed body or in the name of the trustee(s) ;

trustees , where all the trustees of a trust are the sole practitioner and/or his or her employees, must be either in the name under which the sole practitioner is recognised by the SRA or in the name of the trustee(s) ;

and the name of the account must also include the word "client" in full (an abbreviation is not acceptable).

SRA Accounts Rules 2013

A client account must be:

a bank account at a branch (or a bank's head office) in England and Wales; or

a building society account at a branch (or a society's head office) in England and Wales.

There are two types of client account:

a "separate designated client account", which is an account for money relating to a single client , other person or trust , and which includes in its title, in addition to the requirements of rule 13.3 above, a reference to the identity of the client , other person or trust ; and

a "general client account", which is any other client account .

SRA Accounts Rules 2013

The clients of a licensed body must be informed at the outset of the retainer, or during the course of the retainer as appropriate, if the licensed body is (or becomes) owned by a bank or building society and its client account is held at that bank or building society (or another bank or building society in the same group).

Money held in a client account must be immediately available, even at the sacrifice of interest , unless the client otherwise instructs, or the circumstances clearly indicate otherwise.

SRA Accounts Rules 2013

Guidance notes

In the case of in-house practice, any client account should include the names of all solicitors or registered European lawyers held out on the notepaper as principals. The names of other employees who are solicitors or registered European lawyers may also be included if so desired. Any person whose name is included will have to be included on the accountant's report.

A firm may have any number of separate designated client accounts and general client accounts.

Compliance with rule 13.1 to 13.4 ensures that clients, as well as the bank or building society, have the protection afforded by section 85 of the Solicitors Act 1974 or article 4 of the Legal Services Act 2007 (Designation as a Licensing Authority) (No. 2) Order 2011 as appropriate.

SRA Accounts Rules 2013

Rule 14: Use of a client account

Client money must without delay be paid into a client account , and must be held in a client account , except when the rules provide to the contrary (see rules 8, 9, 15, 16, 17 and 19).

Only client money may be paid into or held in a client account , except:

an amount of the firm's own money required to open or maintain the account;

an advance from the firm to fund a payment on behalf of a client or trust in excess of funds held for that client or trust ; the sum becomes client money on payment into the account (for interest on client money, see rule 22.2(c));

money to replace any sum which for any reason has been drawn from the account in breach of rule 20; the replacement money becomes client money on payment into the account;

SRA Accounts Rules 2013

interest which is paid into a client account to enable payment from the client account of all money owed to the client ; and

a cheque in respect of damages and costs , made payable to the client , which is paid into the client account pursuant to the Society's Conditional Fee Agreement; the sum becomes client money on payment into the account (but see rule 17.1(e) for the transfer of the costs element from client account );

and except when the rules provide to the contrary (see guidance note (ii) below).

Client money must be returned to the client (or other person on whose behalf the money is held) promptly, as soon as there is no longer any proper reason to retain those funds. Payments received after you have already accounted to the client , for example by way of a refund, must be paid to the client promptly.

SRA Accounts Rules 2013

You must promptly inform a client (or other person on whose behalf the money is held) in writing of the amount of any client money retained at the end of a matter (or the substantial conclusion of a matter), and the reason for that retention. You must inform the client (or other person) in writing at least once every twelve months thereafter of the amount of client money still held and the reason for the retention, for as long as you continue to hold that money.

You must not provide banking facilities through a client account . Payments into, and transfers or withdrawals from, a client account must be in respect of instructions relating to an underlying transaction (and the funds arising therefrom) or to a service forming part of your normal regulated activities.

Guidance notes

Exceptions to rule 14.1 (client money must be paid into a client account) can be found in:

SRA Accounts Rules 2013

Rule 8 - liquidators, trustees in bankruptcy, Court of Protection deputies and trustees of occupational pension schemes;

Rule 9 - joint accounts;

Rule 15 - client's instructions;

Rule 16 - cash paid straight to client, beneficiary or third party;

cheque endorsed to client, beneficiary or third party;

money withheld from client account on the SRA's authority;

money withheld from client account in accordance with a trustee's powers;

SRA Accounts Rules 2013

Rule 17.1(b) - receipt and transfer of costs;

Rule 19.1 - payments by the Legal Services Commission.

Rule 14.2(a) to (e) provides for exceptions to the principle that only client money may be paid into a client account. Additional exceptions can be found in:

Rule 17.1(c) - receipt and transfer of costs;

Rule 18.2(b) - receipt of mixed payments;

Rule 19.2(c)(ii) - transfer to client account of a sum for unpaid professional disbursements, where regular payments are received from the Legal Services Commission.

SRA Accounts Rules 2013

Only a nominal sum will be required to open or maintain an account. In practice, banks will usually open (and, if instructed, keep open) accounts with nil balances.

If client money is invested in the purchase of assets other than money - such as stocks or shares - it ceases to be client money, because it is no longer money held by the firm. If theinvestment is subsequently sold, the money received is, again, client money. The records kept under rule 29 will need to include entries to show the purchase or sale of investments.

SRA Accounts Rules 2013

Rule 14.5 reflects decisions of the Solicitors Disciplinary Tribunal that it is not a proper part of a solicitor's everyday business or practice to operate a banking facility for third parties, whether they are clients of the firm or not. It should be noted that any exemption under the Financial Services and Markets Act 2000 is likely to be lost if a deposit is taken in circumstances which do not form part of your practice. It should also be borne in mind that there are criminal sanctions against assisting money launderers.

As with rule 7 (Duty to remedy breaches), "promptly" in rule 14.3 and 14.4 is not defined but should be given its natural meaning in the particular circumstances. Accounting to aclient for any surplus funds will often fall naturally at the end of a matter. Other retainers may be more protracted and, even when the principal work has been completed, fundsmay still be needed, for example, to cover outstanding work in a conveyancing transactionor to meet a tax liability. (See also paragraphs 4.8 and 4.9 of the Guidelines for accounting procedures and systems at Appendix 3.)

SRA Accounts Rules 2013

There may be some instances when, during the course of a retainer, the specific purpose for which particular funds were paid no longer exists, for example, the need to instruct counsel or a medical expert. Rule 14.3 is concerned with returning funds to clients at the end of a matter (or the substantial conclusion of a matter) and is not intended to apply to ongoing retainers. However, in order to act in the best interests of your client, you may need to take instructions in such circumstances to ascertain, for instance, whether the money should be returned to the client or retained to cover the general funding or other aspects of the case.

See rule 20.1(j)-(k) for withdrawals from a client account when the rightful owner of funds cannot be traced. The obligation to report regularly under rule 14.4 ceases to apply if you are no longer able to trace the client, at which point rule 20.1(j) or (k) would apply.