SRA Handbook

Use of a client account

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Version 1 of the Handbook was published on 16/09/2011. For more information, please click 'History' Above

Rule 14: Use of a client account

14.1

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).

14.2

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

(a)

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

(b)

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));

(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;

(d)

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

(e)

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).

14.3

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.

14.4

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.

14.5

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

(i)

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

(a)

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

(b)

rule 9 - joint accounts;

(c)

rule 15 - client's instructions;

(d)

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

(A)

cheque endorsed to client, beneficiary or third party;

(B)

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

(C)

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

(e)

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

(f)

rule 19.1 - payments by the Legal Services Commission.

(ii)

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

(a)

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

(b)

rule 18.2(b) - receipt of mixed payments;

(c)

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.

(iii)

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.

(iv)

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 the investment 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.

(v)

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.

(vi)

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 a client 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, funds may still be needed, for example, to cover outstanding work in a conveyancing transaction or to meet a tax liability. (See also paragraphs 4.8 and 4.9 of the Guidelines for accounting procedures and systems at Appendix 3.)

(vii)

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.

(viii)

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.