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Part D – Accounting systems and records

2008-07-14T00:00:00Z
 

The Solicitors' Accounts Rules 1998 have been replaced on the 6 October 2011 by the SRA Accounts Rules 2011 as part of the introduction of outcomes-focused regulation.

Go to SRA Handbook

Part D of the Solicitors' Accounts Rules was amended on 31 March 2009 as part of a general updating of the rules to introduce firm-based regulation and legal disciplinary practices as provided for in the Legal Services Act 2007.

 
 

Rule 29 - Guidelines for accounting procedures and systems

The Council of the Law Society, with the concurrence of the Master of the Rolls, SRA may from time to time publish guidelines for accounting procedures and systems to assist solicitors to comply with Parts A to D of the rules, and solicitors may be required to justify any departure from the guidelines.

Notes

    • (i)

      The current guidelines appear at Appendix 3.

    • (ii)

      The reporting accountant does not carry out a detailed check for compliance, but has a duty to report on any substantial departures from the guidelines discovered whilst carrying out work in preparation of his or her report (see rules 43 and 44(e)).

     
 

Rule 30 - Restrictions on transfers between clients

  • (1)

    A paper transfer of money held in a general client account from the ledger of one client to the ledger of another client may only be made if:

    • (a)

      it would have been permissible to withdraw that sum from the account under rule 22(1); and

    • (b)

      it would have been permissible to pay that sum into the account under rule 15;

    (but there is no requirement in the case of a paper transfer for the written authority of a solicitor, etc., under rule 23(1)).

  • (2)

    No sum in respect of a private loan from one client to another can be paid out of funds held for the lender either:

    • (a)

      by a payment from one client account to another;

    • (b)

      by a paper transfer from the ledger of the lender to that of the borrower; or

    • (c)

      to the borrower directly,

    except with the prior written authority of both clients.

Notes

    • (i)

      "Private loan" means a loan other than one provided by an institution which provides loans on standard terms in the normal course of its activities - rule 30(2) does not apply to loans made by an institutional lender. See also the Solicitors' Code of Conduct 2007 rule 3.16(2)(b), which prohibits a solicitor from acting for both lender and borrower in an individual mortgage at arm's length.

    • (ii)

      If the loan is to be made by (or to) joint clients, the consent of each client must be obtained.

     
 

Rule 31 - Recognised bodiesExecutor, trustee or nominee companies

  • (1)

    If a solicitors' practice owns all the shares in a recognised body which is an executor, trustee or nominee company, the practice and the recognised body must not operate shared client accounts, but may:

    • (a)

      use one set of accounting records for money held, received or paid by the practice and the recognised body; and/or

    • (b)

      deliver a single accountant's report for both the practice and the recognised body.

     
  • (2)

    If such a recognised body as nominee receives a dividend cheque made out to the recognised body, and forwards the cheque, either endorsed or subject to equivalent instructions, to the share-owner's bank or building society, etc., the recognised body will have received (and paid) controlled trust moneyclient money. One way of complying with rule 32 (accounting records) is to keep a copy of the letter to the share-owner's bank or building society, etc., on the file, and, in accordance with rule 32(14), to keep another copy in a central book of such letters. (See also rule 32(9)(f) (retention of records for six years)).

Notes [deleted]

    • (i)

      Rule 31(1) applies equally to a recognised body owned by a sole practitioner, or by a multi-national partnership, or indeed by another recognised body.

    • (ii)

      If a recognised body holds or receives money as executor, trustee or nominee, it is a controlled trustee.

     
  

Rule 32 - Accounting records for client accounts, etc.

Accounting records which must be kept

  • (1)

    A solicitor must at all times keep accounting records properly written up to show the solicitor's dealings with:

    • (a)

      client money received, held or paid by the solicitor; including client money held outside a client account under rule 16(1)(a);16(1)(a) or rule 17(ca); and

    • (b)

      controlled trust money received, held or paid by the solicitor; including controlled trust money held under rule 18(c) in accordance with the trustee's powers in an account which is not a client account; and[deleted]

    • (c)

      any office money relating to any client or trust matter, or to any controlled trust matter.

     
  • (2)

    All dealings with client money (whether for a client or other person), and with any controlled trust money, must be appropriately recorded:

    • (a)

      in a client cash account or in a record of sums transferred from one client ledger account to another; and

    • (b)

      on the client side of a separate client ledger account for each client (or other person, or controlled trust).

    No other entries may be made in these records.

  • (3)

    If separate designated client accounts are used:

    • (a)

      a combined cash account must be kept in order to show the total amount held in separate designated client accounts; and

    • (b)

      a record of the amount held for each client (or other person, or controlled trust) must be made either in a deposit column of a client ledger account, or on the client side of a client ledger account kept specifically for a separate designated client account, for each client (or other person, or controlled trust).

     
  • (4)

    All dealings with office money relating to any client matter, or to any controlled trust matter, must be appropriately recorded in an office cash account and on the office side of the appropriate client ledger account.

  • Current balance
     
  • (5)

    The current balance on each client ledger account must always be shown, or be readily ascertainable, from the records kept in accordance with paragraphs (2) and (3) above.

  • Acting for both lender and borrower
     
  • (6)

    When acting for both lender and borrower on a mortgage advance, separate client ledger accounts for both clients need not be opened, provided that:

    • (a)

      the funds belonging to each client are clearly identifiable; and

    • (b)

      the lender is an institutional lender which provides mortgages on standard terms in the normal course of its activities.

     
  • Reconciliations
     
  • (7)

    The solicitor must, at least once every fourteen weeks for controlled trust money heldin the case of money held by solicitor-trustees in passbook-operated separate designated client accounts, and at least once every five weeks in all other cases:

    • (a)

      compare the balance on the client cash account(s) with the balances shown on the statements and passbooks (after allowing for all unpresented items) of all general client accounts and separate designated client accounts, and of any account which is not a client account but in which the solicitor holds client money under rule 16(1)(a)(or controlled trust money under rule 18(c))or rule 17(ca), and any client money(or controlled trust money) held by the solicitor in cash; and

    • (b)

      as at the same date prepare a listing of all the balances shown by the client ledger accounts of the liabilities to clients (and other persons, and controlled trusts) and compare the total of those balances with the balance on the client cash account; and also

    • (c)

      prepare a reconciliation statement; this statement must show the cause of the difference, if any, shown by each of the above comparisons.

     
  • Bills and notifications of costs
     
  • (8)

    The solicitor must keep readily accessible a central record or file of copies of:

    • (a)

      all bills given or sent by the solicitor; and

    • (b)

      all other written notifications of costs given or sent by the solicitor;

    in both cases distinguishing between fees, disbursements not yet paid at the date of the bill, and paid disbursements.

  • Withdrawals under rule 22(1)(ga) and (2)(ga)
     
  • (8A)

    A solicitor who withdraws client money under rule 22(1)(ga) or controlled trust money under rule 22(2)(ga) must keep a record of the steps taken in accordance with rule 22(2A)(a)-(c), together with all relevant documentation (including receipts from the charity).

  • Retention of records
     
  • (9)

    The solicitor must retain for at least six years from the date of the last entry:

    • (a)

      all documents or other records required by paragraphs (1) to (8A) above;

    • (b)

      all statements and passbooks, as printed and issued by the bank, building society or other financial institution, and/or all duplicate statements and copies of passbook entries permitted in lieu of the originals by rule 10(3) or (4), for:

      • (i)

        any general client account or separate designated client account;

      • (ii)

        any joint account held under rule 10;

      • (iii)

        any account which is not a client account but in which the solicitor holds client money under rule 16(1)(a);16(1)(a) or rule 17(ca); and

      • (iv)

        any account which is not a client account but in which controlled trust money is held under rule 18(c); and[deleted]

      • (v)

        any office account maintained in relation to the practice;

       
    • (c)

      any records kept under rule 9 (liquidators, trustees in bankruptcy, Court of Protection deputies and trustees of occupational pension schemes) including, as printed or otherwise issued, any statements, passbooks and other accounting records originating outside the solicitor's office;

    • (d)

      any written instructions to withhold client money from a client account (or a copy of the solicitor's confirmation of oral instructions) in accordance with rule 16;

    • (e)

      any central registers kept under paragraphs (11) to (13A) below; and

    • (f)

      any copy letters kept centrally under rule 31(2) (dividend cheques endorsed over by recognised bodynominee company).

     
  • (10)

    The solicitor must retain for at least two years:

    • (a)

      originals or copies of all authorities, other than cheques, for the withdrawal of money from a client account; and

    • (b)

      all original paid cheques (or digital images of the front and back of all original paid cheques), unless there is a written arrangement with the bank, building society or other financial institution that:

      • (i)

        it will retain the original cheques on the solicitor's behalf for that period; or

      • (ii)

        in the event of destruction of any original cheques, it will retain digital images of the front and back of those cheques on the solicitor's behalf for that period and will, on demand by the solicitor, the solicitor's reporting accountant or the SocietySRA, produce copies of the digital images accompanied, when requested, by a certificate of verification signed by an authorised officer.

       
     
  • Centrally kept records for certain accounts, etc.
     
  • (11)

    Statements and passbooks for client money or controlled trust money held outside a client account under rule 16(1)(a) or rule 18(c) 17(ca)must be kept together centrally, or the solicitor must maintain a central register of these accounts.

  • (12)

    Any records kept under rule 9 (liquidators, trustees in bankruptcy, Court of Protection deputies and trustees of occupational pension schemes) must be kept together centrally, or the solicitor must maintain a central register of the appointments.

  • (13)

    The statements, passbooks, duplicate statements and copies of passbook entries relating to any joint account held under rule 10 must be kept together centrally, or the solicitor must maintain a central register of all joint accounts.

  • (13A)

    A central register of all withdrawals made under rule 22(1)(ga) and 22(2)(ga) must be kept, detailing the name of the client, controlled trust or other person or trust on whose behalf the money is held (if known), the amount, the name of the recipient charity and the date of the payment.

  • (14)

    If a recognised body as nominee company follows the option in rule 31(2) (keeping instruction letters for dividend payments), a central book must be kept of all instruction letters to the share-owner's bank or building society, etc.

  • Computerisation
     
  • (15)

    Records required by this rule may be kept on a computerised system, apart from the following documents, which must be retained as printed or otherwise issued:

    • (a)

      original statements and passbooks retained under paragraph (9)(b) above;

    • (b)

      original statements, passbooks and other accounting records retained under paragraph (9)(c) above; and

    • (c)

      original cheques and copy authorities retained under paragraph (10) above.

    There is no obligation to keep a hard copy of computerised records. However, if no hard copy is kept, the information recorded must be capable of being reproduced reasonably quickly in printed form for at least six years, or for at least two years in the case of digital images of paid cheques retained under paragraph (10) above.

  • Suspense ledger accounts
     
  • (16)

    Suspense client ledger accounts may be used only when the solicitor can justify their use; for instance, for temporary use on receipt of an unidentified payment, if time is needed to establish the nature of the payment or the identity of the client.

Notes

    • (i)

      It is strongly recommended that accounting records are written up at least weekly, even in the smallest practice, and daily in the case of larger firms.

    • (ii)

      Rule 32(1) to (6) (general record-keeping requirements) and rule 32(7) (reconciliations) do not apply to:

      • (a)

        solicitor liquidators, trustees in bankruptcy, Court of Protection deputies and trustees of occupational pension schemes operating in accordance with statutory rules or regulations under rule 9(1)(a);

      • (b)

        joint accounts operated under rule 10;

      • (c)

        a client's own account operated under rule 11; the record-keeping requirements for this type of account are set out in rule 33;

      • (d)

        controlled solicitor-trustees who instruct an outside manageradministrator to run, or continue to run, on a day to day basis, the business or property portfolio of an estate or trust, provided the manageradministrator keeps and retains appropriate accounting records, which are available for inspection by the SocietySRA in accordance with rule 34. (See also note (v) to rule 23.)

       
    • (iii)

      When a cheque or draft is received on behalf of a client and is endorsed over, not passing through a client account, it must be recorded in the books of account as a receipt and payment on behalf of the client. The same applies to cash received and not deposited in a client account but paid out to or on behalf of a client. A cheque made payable to a client, which is forwarded to the client by the solicitor, is not client money and falls outside the rules, although it is advisable to record the action taken.

    • (iv)

      For the purpose of rule 32, money which has been paid into a client account under rule 19(1)(c) (receipt of costs), or under rule 20(2)(b) (mixed money), and for the time being remains in a client account, is to be treated as client money; it should be recorded on the client side of the client ledger account, but must be appropriately identified.

    • (v)

      For the purpose of rule 32, money which has been paid into an office account under rule 19(1)(b) (receipt of costs), rule 21(1)(a) (advance payments from the Legal Services Commission), or under rule 21(1)(b) (payment of costs from the Legal Services Commission), and for the time being remains in an office account without breaching the rules, is to be treated as office money. Money paid into an office account under rule 21(2)(b) (regular payments) is office money. All these payments should be recorded on the office side of the client ledger account (for the individual client or for the Legal Services Commission), and must be appropriately identified.

    • (vi)

      Some accounting systems do not retain a record of past daily balances. This does not put the solicitor in breach of rule 32(5).

    • (vii)

      "Clearly identifiable" in rule 32(6) means that by looking at the ledger account the nature and owner of the mortgage advance are unambiguously stated. For example, if a mortgage advance of £100,000 is received from the ABC Building Society, the entry should be recorded as "£100,000, mortgage advance, ABC Building Society". It is not enough to state that the money was received from the ABC Building Society without specifying the nature of the payment, or vice versa.

    • (viii)

      Although the solicitor does not open a separate ledger account for the lender, the mortgage advance credited to that account belongs to the lender, not to the borrower, until completion takes place. Improper removal of these mortgage funds from a client account would be a breach of rule 22.

    • (ix)

      Reconciliations should be carried out as they fall due, and in any event no later than the due date for the next reconciliation. In the case of a separate designated client account operated with a passbook, there is no need to ask the bank, building society or other financial institution for confirmation of the balance held. In the case of other separate designated client accounts, the solicitor should either obtain statements at least monthly, or should obtain written confirmation of the balance direct from the bank, building society or other financial institution. There is no requirement to check that interest has been credited since the last statement, or the last entry in the passbook.

    • (x)

      In making the comparisons under rule 32(7)(a) and (b), some solicitors use credits of one client against debits of another when checking total client liabilities. This is improper because it fails to show up the shortage.

    • (xi)

      The effect of rule 32(9)(b) is that the solicitor must ensure that the bank issues hard copy statements. Statements sent from the bank to its solicitor customer by means of electronic mail, even if capable of being printed off as hard copies, will not suffice.

    • (xii)

      Rule 32(9)(d) - retention of client's instructions to withhold money from a client account - does not require records to be kept centrally; however this may be prudent, to avoid losing the instructions if the file is passed to the client.

    • (xiii)

      A solicitor who holds client money (or controlled trust money) in a currency other than sterling should hold that money in a separate account for the appropriate currency. Separate books of account should be kept for that currency.

    • (xiv)

      The requirement to keep paid cheques under rule 32(10)(b) extends to all cheques drawn on a client account, or on an account in which client money is held outside a client account under rule 16(1)(a), or on an account in which controlled trust money is held outside a client account under rule 18(c) or rule 17(ca).

    • (xv)

      Solicitors may enter into an arrangement whereby the bank keeps digital images of paid cheques in place of the originals. The bank should take an electronic image of the front and back of each cheque in black and white and agree to hold such images, and to make printed copies available on request, for at least two years. Alternatively, solicitors may take and keep their own digital images of paid cheques.

    • (xvi)

      Microfilmed copies of paid cheques are not acceptable for the purposes of rule 32(10)(b). If a bank is able to provide microfilmed copies only, the solicitor must obtain the original paid cheques from the bank and retain them for at least two years.

    • (xvii)

      Certificates of verification in relation to digital images of cheques may on occasion be required by the SocietySRA when exercising its investigative and enforcement powers. The reporting accountant will not need to ask for a certificate of verification but will be able to rely on the printed copy of the digital image as if it were the original.

     
 

Rule 33 - Accounting records for clients' own accounts

  • (1)

    When a solicitor operates a client's own account as signatory under rule 11, the solicitor must retain, for at least six years from the date of the last entry, the statements or passbooks as printed and issued by the bank, building society or other financial institution, and/or the duplicate statements, copies of passbook entries and cheque details permitted in lieu of the originals by rule 11(3) or (4); and any central register kept under paragraph (2) below.

  • (2)

    The solicitor must either keep these records together centrally, or maintain a central register of the accounts operated under rule 11.

  • (3)

    If, when the solicitor ceases to operate the account, the client requests the original statements or passbooks, the solicitor must take photocopies and keep them in lieu of the originals.

  • (4)

    This rule applies only to solicitors in private practice.

Note

 
7/1/2007 12:00:00 AM

Part D – Accounting systems and records

2008-07-14T00:00:00Z
 

The Solicitors' Accounts Rules 1998 have been replaced on the 6 October 2011 by the SRA Accounts Rules 2011 as part of the introduction of outcomes-focused regulation.

Go to SRA Handbook

Part D of the Solicitors' Accounts Rules was amended on 31 March 2009 as part of a general updating of the rules to introduce firm-based regulation and legal disciplinary practices as provided for in the Legal Services Act 2007.

 
 

Rule 29 - Guidelines for accounting procedures and systems

The Council of the Law Society, with the concurrence of the Master of the Rolls, SRA may from time to time publish guidelines for accounting procedures and systems to assist solicitors to comply with Parts A to D of the rules, and solicitors may be required to justify any departure from the guidelines.

Notes

    • (i)

      The current guidelines appear at Appendix 3.

    • (ii)

      The reporting accountant does not carry out a detailed check for compliance, but has a duty to report on any substantial departures from the guidelines discovered whilst carrying out work in preparation of his or her report (see rules 43 and 44(e)).

     
 

Rule 30 - Restrictions on transfers between clients

  • (1)

    A paper transfer of money held in a general client account from the ledger of one client to the ledger of another client may only be made if:

    • (a)

      it would have been permissible to withdraw that sum from the account under rule 22(1); and

    • (b)

      it would have been permissible to pay that sum into the account under rule 15;

    (but there is no requirement in the case of a paper transfer for the written authority of a solicitor, etc., under rule 23(1)).

  • (2)

    No sum in respect of a private loan from one client to another can be paid out of funds held for the lender either:

    • (a)

      by a payment from one client account to another;

    • (b)

      by a paper transfer from the ledger of the lender to that of the borrower; or

    • (c)

      to the borrower directly,

    except with the prior written authority of both clients.

Notes

    • (i)

      "Private loan" means a loan other than one provided by an institution which provides loans on standard terms in the normal course of its activities - rule 30(2) does not apply to loans made by an institutional lender. See also the Solicitors' Code of Conduct 2007 rule 3.16(2)(b), which prohibits a solicitor from acting for both lender and borrower in an individual mortgage at arm's length.

    • (ii)

      If the loan is to be made by (or to) joint clients, the consent of each client must be obtained.

     
 

Rule 31 - Recognised bodiesExecutor, trustee or nominee companies

  • (1)

    If a solicitors' practice owns all the shares in a recognised body which is an executor, trustee or nominee company, the practice and the recognised body must not operate shared client accounts, but may:

    • (a)

      use one set of accounting records for money held, received or paid by the practice and the recognised body; and/or

    • (b)

      deliver a single accountant's report for both the practice and the recognised body.

     
  • (2)

    If such a recognised body as nominee receives a dividend cheque made out to the recognised body, and forwards the cheque, either endorsed or subject to equivalent instructions, to the share-owner's bank or building society, etc., the recognised body will have received (and paid) controlled trust moneyclient money. One way of complying with rule 32 (accounting records) is to keep a copy of the letter to the share-owner's bank or building society, etc., on the file, and, in accordance with rule 32(14), to keep another copy in a central book of such letters. (See also rule 32(9)(f) (retention of records for six years)).

Notes [deleted]

    • (i)

      Rule 31(1) applies equally to a recognised body owned by a sole practitioner, or by a multi-national partnership, or indeed by another recognised body.

    • (ii)

      If a recognised body holds or receives money as executor, trustee or nominee, it is a controlled trustee.

     
  

Rule 32 - Accounting records for client accounts, etc.

Accounting records which must be kept

  • (1)

    A solicitor must at all times keep accounting records properly written up to show the solicitor's dealings with:

    • (a)

      client money received, held or paid by the solicitor; including client money held outside a client account under rule 16(1)(a);16(1)(a) or rule 17(ca); and

    • (b)

      controlled trust money received, held or paid by the solicitor; including controlled trust money held under rule 18(c) in accordance with the trustee's powers in an account which is not a client account; and[deleted]

    • (c)

      any office money relating to any client or trust matter, or to any controlled trust matter.

     
  • (2)

    All dealings with client money (whether for a client or other person), and with any controlled trust money, must be appropriately recorded:

    • (a)

      in a client cash account or in a record of sums transferred from one client ledger account to another; and

    • (b)

      on the client side of a separate client ledger account for each client (or other person, or controlled trust).

    No other entries may be made in these records.

  • (3)

    If separate designated client accounts are used:

    • (a)

      a combined cash account must be kept in order to show the total amount held in separate designated client accounts; and

    • (b)

      a record of the amount held for each client (or other person, or controlled trust) must be made either in a deposit column of a client ledger account, or on the client side of a client ledger account kept specifically for a separate designated client account, for each client (or other person, or controlled trust).

     
  • (4)

    All dealings with office money relating to any client matter, or to any controlled trust matter, must be appropriately recorded in an office cash account and on the office side of the appropriate client ledger account.

  • Current balance
     
  • (5)

    The current balance on each client ledger account must always be shown, or be readily ascertainable, from the records kept in accordance with paragraphs (2) and (3) above.

  • Acting for both lender and borrower
     
  • (6)

    When acting for both lender and borrower on a mortgage advance, separate client ledger accounts for both clients need not be opened, provided that:

    • (a)

      the funds belonging to each client are clearly identifiable; and

    • (b)

      the lender is an institutional lender which provides mortgages on standard terms in the normal course of its activities.

     
  • Reconciliations
     
  • (7)

    The solicitor must, at least once every fourteen weeks for controlled trust money heldin the case of money held by solicitor-trustees in passbook-operated separate designated client accounts, and at least once every five weeks in all other cases:

    • (a)

      compare the balance on the client cash account(s) with the balances shown on the statements and passbooks (after allowing for all unpresented items) of all general client accounts and separate designated client accounts, and of any account which is not a client account but in which the solicitor holds client money under rule 16(1)(a)(or controlled trust money under rule 18(c))or rule 17(ca), and any client money(or controlled trust money) held by the solicitor in cash; and

    • (b)

      as at the same date prepare a listing of all the balances shown by the client ledger accounts of the liabilities to clients (and other persons, and controlled trusts) and compare the total of those balances with the balance on the client cash account; and also

    • (c)

      prepare a reconciliation statement; this statement must show the cause of the difference, if any, shown by each of the above comparisons.

     
  • Bills and notifications of costs
     
  • (8)

    The solicitor must keep readily accessible a central record or file of copies of:

    • (a)

      all bills given or sent by the solicitor; and

    • (b)

      all other written notifications of costs given or sent by the solicitor;

    in both cases distinguishing between fees, disbursements not yet paid at the date of the bill, and paid disbursements.

  • Withdrawals under rule 22(1)(ga) and (2)(ga)
     
  • (8A)

    A solicitor who withdraws client money under rule 22(1)(ga) or controlled trust money under rule 22(2)(ga) must keep a record of the steps taken in accordance with rule 22(2A)(a)-(c), together with all relevant documentation (including receipts from the charity).

  • Retention of records
     
  • (9)

    The solicitor must retain for at least six years from the date of the last entry:

    • (a)

      all documents or other records required by paragraphs (1) to (8A) above;

    • (b)

      all statements and passbooks, as printed and issued by the bank, building society or other financial institution, and/or all duplicate statements and copies of passbook entries permitted in lieu of the originals by rule 10(3) or (4), for:

      • (i)

        any general client account or separate designated client account;

      • (ii)

        any joint account held under rule 10;

      • (iii)

        any account which is not a client account but in which the solicitor holds client money under rule 16(1)(a);16(1)(a) or rule 17(ca); and

      • (iv)

        any account which is not a client account but in which controlled trust money is held under rule 18(c); and[deleted]

      • (v)

        any office account maintained in relation to the practice;

       
    • (c)

      any records kept under rule 9 (liquidators, trustees in bankruptcy, Court of Protection deputies and trustees of occupational pension schemes) including, as printed or otherwise issued, any statements, passbooks and other accounting records originating outside the solicitor's office;

    • (d)

      any written instructions to withhold client money from a client account (or a copy of the solicitor's confirmation of oral instructions) in accordance with rule 16;

    • (e)

      any central registers kept under paragraphs (11) to (13A) below; and

    • (f)

      any copy letters kept centrally under rule 31(2) (dividend cheques endorsed over by recognised bodynominee company).

     
  • (10)

    The solicitor must retain for at least two years:

    • (a)

      originals or copies of all authorities, other than cheques, for the withdrawal of money from a client account; and

    • (b)

      all original paid cheques (or digital images of the front and back of all original paid cheques), unless there is a written arrangement with the bank, building society or other financial institution that:

      • (i)

        it will retain the original cheques on the solicitor's behalf for that period; or

      • (ii)

        in the event of destruction of any original cheques, it will retain digital images of the front and back of those cheques on the solicitor's behalf for that period and will, on demand by the solicitor, the solicitor's reporting accountant or the SocietySRA, produce copies of the digital images accompanied, when requested, by a certificate of verification signed by an authorised officer.

       
     
  • Centrally kept records for certain accounts, etc.
     
  • (11)

    Statements and passbooks for client money or controlled trust money held outside a client account under rule 16(1)(a) or rule 18(c) 17(ca)must be kept together centrally, or the solicitor must maintain a central register of these accounts.

  • (12)

    Any records kept under rule 9 (liquidators, trustees in bankruptcy, Court of Protection deputies and trustees of occupational pension schemes) must be kept together centrally, or the solicitor must maintain a central register of the appointments.

  • (13)

    The statements, passbooks, duplicate statements and copies of passbook entries relating to any joint account held under rule 10 must be kept together centrally, or the solicitor must maintain a central register of all joint accounts.

  • (13A)

    A central register of all withdrawals made under rule 22(1)(ga) and 22(2)(ga) must be kept, detailing the name of the client, controlled trust or other person or trust on whose behalf the money is held (if known), the amount, the name of the recipient charity and the date of the payment.

  • (14)

    If a recognised body as nominee company follows the option in rule 31(2) (keeping instruction letters for dividend payments), a central book must be kept of all instruction letters to the share-owner's bank or building society, etc.

  • Computerisation
     
  • (15)

    Records required by this rule may be kept on a computerised system, apart from the following documents, which must be retained as printed or otherwise issued:

    • (a)

      original statements and passbooks retained under paragraph (9)(b) above;

    • (b)

      original statements, passbooks and other accounting records retained under paragraph (9)(c) above; and

    • (c)

      original cheques and copy authorities retained under paragraph (10) above.

    There is no obligation to keep a hard copy of computerised records. However, if no hard copy is kept, the information recorded must be capable of being reproduced reasonably quickly in printed form for at least six years, or for at least two years in the case of digital images of paid cheques retained under paragraph (10) above.

  • Suspense ledger accounts
     
  • (16)

    Suspense client ledger accounts may be used only when the solicitor can justify their use; for instance, for temporary use on receipt of an unidentified payment, if time is needed to establish the nature of the payment or the identity of the client.

Notes

    • (i)

      It is strongly recommended that accounting records are written up at least weekly, even in the smallest practice, and daily in the case of larger firms.

    • (ii)

      Rule 32(1) to (6) (general record-keeping requirements) and rule 32(7) (reconciliations) do not apply to:

      • (a)

        solicitor liquidators, trustees in bankruptcy, Court of Protection deputies and trustees of occupational pension schemes operating in accordance with statutory rules or regulations under rule 9(1)(a);

      • (b)

        joint accounts operated under rule 10;

      • (c)

        a client's own account operated under rule 11; the record-keeping requirements for this type of account are set out in rule 33;

      • (d)

        controlled solicitor-trustees who instruct an outside manageradministrator to run, or continue to run, on a day to day basis, the business or property portfolio of an estate or trust, provided the manageradministrator keeps and retains appropriate accounting records, which are available for inspection by the SocietySRA in accordance with rule 34. (See also note (v) to rule 23.)

       
    • (iii)

      When a cheque or draft is received on behalf of a client and is endorsed over, not passing through a client account, it must be recorded in the books of account as a receipt and payment on behalf of the client. The same applies to cash received and not deposited in a client account but paid out to or on behalf of a client. A cheque made payable to a client, which is forwarded to the client by the solicitor, is not client money and falls outside the rules, although it is advisable to record the action taken.

    • (iv)

      For the purpose of rule 32, money which has been paid into a client account under rule 19(1)(c) (receipt of costs), or under rule 20(2)(b) (mixed money), and for the time being remains in a client account, is to be treated as client money; it should be recorded on the client side of the client ledger account, but must be appropriately identified.

    • (v)

      For the purpose of rule 32, money which has been paid into an office account under rule 19(1)(b) (receipt of costs), rule 21(1)(a) (advance payments from the Legal Services Commission), or under rule 21(1)(b) (payment of costs from the Legal Services Commission), and for the time being remains in an office account without breaching the rules, is to be treated as office money. Money paid into an office account under rule 21(2)(b) (regular payments) is office money. All these payments should be recorded on the office side of the client ledger account (for the individual client or for the Legal Services Commission), and must be appropriately identified.

    • (vi)

      Some accounting systems do not retain a record of past daily balances. This does not put the solicitor in breach of rule 32(5).

    • (vii)

      "Clearly identifiable" in rule 32(6) means that by looking at the ledger account the nature and owner of the mortgage advance are unambiguously stated. For example, if a mortgage advance of £100,000 is received from the ABC Building Society, the entry should be recorded as "£100,000, mortgage advance, ABC Building Society". It is not enough to state that the money was received from the ABC Building Society without specifying the nature of the payment, or vice versa.

    • (viii)

      Although the solicitor does not open a separate ledger account for the lender, the mortgage advance credited to that account belongs to the lender, not to the borrower, until completion takes place. Improper removal of these mortgage funds from a client account would be a breach of rule 22.

    • (ix)

      Reconciliations should be carried out as they fall due, and in any event no later than the due date for the next reconciliation. In the case of a separate designated client account operated with a passbook, there is no need to ask the bank, building society or other financial institution for confirmation of the balance held. In the case of other separate designated client accounts, the solicitor should either obtain statements at least monthly, or should obtain written confirmation of the balance direct from the bank, building society or other financial institution. There is no requirement to check that interest has been credited since the last statement, or the last entry in the passbook.

    • (x)

      In making the comparisons under rule 32(7)(a) and (b), some solicitors use credits of one client against debits of another when checking total client liabilities. This is improper because it fails to show up the shortage.

    • (xi)

      The effect of rule 32(9)(b) is that the solicitor must ensure that the bank issues hard copy statements. Statements sent from the bank to its solicitor customer by means of electronic mail, even if capable of being printed off as hard copies, will not suffice.

    • (xii)

      Rule 32(9)(d) - retention of client's instructions to withhold money from a client account - does not require records to be kept centrally; however this may be prudent, to avoid losing the instructions if the file is passed to the client.

    • (xiii)

      A solicitor who holds client money (or controlled trust money) in a currency other than sterling should hold that money in a separate account for the appropriate currency. Separate books of account should be kept for that currency.

    • (xiv)

      The requirement to keep paid cheques under rule 32(10)(b) extends to all cheques drawn on a client account, or on an account in which client money is held outside a client account under rule 16(1)(a), or on an account in which controlled trust money is held outside a client account under rule 18(c) or rule 17(ca).

    • (xv)

      Solicitors may enter into an arrangement whereby the bank keeps digital images of paid cheques in place of the originals. The bank should take an electronic image of the front and back of each cheque in black and white and agree to hold such images, and to make printed copies available on request, for at least two years. Alternatively, solicitors may take and keep their own digital images of paid cheques.

    • (xvi)

      Microfilmed copies of paid cheques are not acceptable for the purposes of rule 32(10)(b). If a bank is able to provide microfilmed copies only, the solicitor must obtain the original paid cheques from the bank and retain them for at least two years.

    • (xvii)

      Certificates of verification in relation to digital images of cheques may on occasion be required by the SocietySRA when exercising its investigative and enforcement powers. The reporting accountant will not need to ask for a certificate of verification but will be able to rely on the printed copy of the digital image as if it were the original.

     
 

Rule 33 - Accounting records for clients' own accounts

  • (1)

    When a solicitor operates a client's own account as signatory under rule 11, the solicitor must retain, for at least six years from the date of the last entry, the statements or passbooks as printed and issued by the bank, building society or other financial institution, and/or the duplicate statements, copies of passbook entries and cheque details permitted in lieu of the originals by rule 11(3) or (4); and any central register kept under paragraph (2) below.

  • (2)

    The solicitor must either keep these records together centrally, or maintain a central register of the accounts operated under rule 11.

  • (3)

    If, when the solicitor ceases to operate the account, the client requests the original statements or passbooks, the solicitor must take photocopies and keep them in lieu of the originals.

  • (4)

    This rule applies only to solicitors in private practice.

Note

 
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