Intro to PP – WS1 Solicitors Accounts TIFF LIAO
Chapter 9 – The SRA Accounts Rules (page 89)
INTRODUCTION
- A firm providing legal services is a business and must make a profit each year if it is to survive.
- Like any business, it requires day-to-day records of income, expenses, assets AND liabilities, so that at the end of the
year it can produce a Profit and Loss Account and Balance Sheet
- Unlike most other businesses, however, law firms frequently hold money that belongs to other people.
e.g. clients who are buying property or a business will normally give funds to their solicitor in advance of completion of
the purchase.
- Chapter deals with the principles which underpin the SRA Accounts Rules 2019 and with the Rules which impact most
significantly on the way in which a firm providing regulated services is required to deal with client funds.
- Historically, solicitors were subject to detailed and prescriptive Accounts Rules. HOWEVER, in June 2017 the SRA
announced that, in its view, the length and complexity of the Accounts Rules 2011 made it difficult for new entrants to the
market to understand what was required of them, as well as for consumers to understand what to expect when a firm
handled their money.
Further, many firms found themselves in technical breach of the Accounts Rules 2011 in circumstances where there
were no real risks to client money.
- The SRA announced that it proposed to:
(a) Simplify the Accounts Rules
By focusing on key principles + requirements for keeping client money safe; including:
(i) Keeping client money SEPARATE from the firms own money
(ii) Ensuring client money is returned promptly at the end of a matter;
(iii) Using client money only for its intended purpose;
(iv) Proportionate requirements for firms to obtain an annual accountant report; AND
(b) Support the Account rules
With an online toolkit consisting of guidance and case studies to aid compliance
SUMMARY
RULE 4 - A firm must keep CLIENT money SEPARATE from the firms own money
Subject to exceptions, client money MUST be paid into a client bank account promptly and must keep separate
from the firms own money
Fund from mixed payments must be allocated promptly to the correct bank account
RULE 5.3 - Firms must NEVER withdraw more client money for a client than is held in the client bank account
for that client
RULE 7 – Clients are usually (not always) entitled to interest on client money held for them by solicitors
RULE 8 – All dealings with client money MUST be recorded
1
TIFF LIAO
,Intro to PP – WS1 Solicitors Accounts TIFF LIAO
Chapter 9 – The SRA Accounts Rules (page 89)
PRINCIPLES
GOVERNING THE RULES
- IN THE PAST: SRA regulated ONLY solicitors
- The arrival of alternative business structures in October 2011 means that legal services now also be provided by multi-
disciplinary practices and by firms owed by non-lawyers
- The SRA hopes to regulate ALL those providing legal services and has rewritten its Account Rules and it’s Code of
Conduct so that they do not refer specially to solicitors.
anyone who is regulated by the SRA will have to follow the same rules
- PURPOSE: Designed to reduce the risk of accidental or deliberate misuse of client money AND to protect clients from
the risks of accidental or deliberate mishandling of their money
Those regulated by the SRA MUST follow SEVEN pervasive principles
(Defines the fundamental ethical and professional standards that the SRA expects of all firms and individuals it regulates,
incl. non-lawyer owners)
You act:
1. In a way that upholds the constitutional principle of the rule of law, and
the proper administration of justice
2. In a way that upholds public trust and confidence in the solicitors
profession and in legal services provided by authorised persons
3. With independence
4. With honesty
5. With integrity
6. In a way that encourages equality, diversity, and inclusion
7. In the best interest of each client
WHO
IS BOUND BY THE RULES?
- RULE 1.1 – the Rules apply to authorised bodies, their managers and employees, and reference to
‘you’ in the Rules should read accordingly
- Authorised body’s managers = JOINTLY AND SEVERELY responsible for compliance with the
Rules by the authorised body, it’s managers and employees
In relation to a licensed body = the Rules apply ONLY in respect of activities regulated by the
SRA in accordance with the terms of it’s license (RULE 1.2 and RULE 1.3)
CLIENT
MONEY
- RULES 2–4 set out what an authorised body (referred to as ‘a firm’ in the rest of this chapter) must do with client money
as defined in RULE 2.1.
- RULE 4.1 requires CLIENT money to be kept SEPERATE from the money belonging to the firm (usually in a separate
client bank account).
Beyond that, no requirements are imposed on what the firm does with its own money.
- Client = person for whom you act.
- Client money = definition goes beyond holding money for a client. RULE 2.1(B) AND (C) extends the meaning of client
money significantly from RULE 2.1 which states that client money is money held or received by a firm:
(a) relating to a regulated services delivered by you to a client;
(b) on behalf of a 3rd party in relation to regulated services delivered by you (such as money held as an
agent, stakeholder, or held to the senders order);
(c) as a trustee or as the holder of a specified office or appointment, such as a donee of a power of
2
TIFF LIAO
, Intro to PP – WS1 Solicitors Accounts TIFF LIAO
Chapter 9 – The SRA Accounts Rules (page 89)
attorney, Court of protection deputy or trustee of an occupational pension scheme;
(d) in response of your fees and any unpaid disbursements if held or received PRIOR to delivery of a bill
for the same
The definition of client money does NOT include money received for disbursements which have
ALREADY been paid, so where money is received in reimbursement of such a payment, it is a receipt of
BUSINESS money by the firm. Being business money, it will be paid into a business bank account.
In Challinor and Others v Juliet Bellis & Co and Another [2013] EWHC 347 (Ch), Hildyard J made the point
that a solicitor has a duty to clarify any ambiguity as to whom client money is held for.
- Fees = your own charges or profit costs (incl. any VAT element)
- Disbursements =any costs or expenses paid OR to be paid to a 3rd party on behalf of the client or trust (including
any VAT element) save for office expenses such as postage and courier fees
- Costs = fees and disbursements (covers both)
The effect of RULE 2.1(D)
- Is that money received for all fees AND future disbursements paid to the firm is considered CLIENT money UNLESS
until billed.
- Such receipts must therefore be held in a CLIENT account (UNLESS they are the ONLY categories of CLIENT money
held by the firm and the firm takes advantage of the exemption in Rule 2.2.
- Such money is often referred to as money received ‘generally on account of costs’.
- Its use is dealt with under RULE 4.3.
A firm might wish to send a bill to a client for its anticipated future fees and disbursements with a view to paying the money
received in payment of that bill into the firm’s BUSINESS account
Thus ESCAPING the requirement that would apply under RULE 2.1 (D) to pay money received for unbilled fees and
unpaid disbursements into the CLIENT bank account.
This is permitted but there are reasons why firms should be cautious about billing for such future items.
Exercise: Client or business money?
Firm receives £1,000 generally on account of costs. Generally on accounts of costs
CLIENT money held in the client bank account
can be used to make payments on the clients
behalf
Firm makes a payment of £100 from its business bank money received for a paid disbursement
account for a client. The client gives the firm £100 in BUSINESS money in the business bank account
reimbursement.
Firm bills client for professional charges of £500 for future payment of bill ALWAYS BUSINESS money in
work plus £100 to cover a future disbursement. The the business bank account
client pays £600
Must NOT ALLOW a client account to be used as a banking facility unrelated to any underlying transaction which the solicitor
is carrying out.
Case of Fuglers & Others v SRA sets out 3 reasons:
(1) Objectifiable Solicitors to an extent are NOT acting as solicitors, rather trading on the trust and reputation which they
in itself acquire through their status as solicitors in circumstances where such trust would not be justified by the
regulatory regimen - Solicitors are facilitating day-to-day commercial trading like banks but are not
qualified to act as bankers.
(2) Risk Allowing a client bank account to be used as a banking facility, unrelated to any underlying transaction
which the solicitor is carrying out, carries with it the obvious RISK that the account may be used by the
client for money laundering.
Rule 14.5 (predecessor to Rule 3.3) was intended to reduce the risk.
(3) (risk) of In an insolvency context allows the client to achieve what would normally be impossible – banks
insolvency normally withdraw facilities upon notification that there has been a winding up petition
3
TIFF LIAO
Chapter 9 – The SRA Accounts Rules (page 89)
INTRODUCTION
- A firm providing legal services is a business and must make a profit each year if it is to survive.
- Like any business, it requires day-to-day records of income, expenses, assets AND liabilities, so that at the end of the
year it can produce a Profit and Loss Account and Balance Sheet
- Unlike most other businesses, however, law firms frequently hold money that belongs to other people.
e.g. clients who are buying property or a business will normally give funds to their solicitor in advance of completion of
the purchase.
- Chapter deals with the principles which underpin the SRA Accounts Rules 2019 and with the Rules which impact most
significantly on the way in which a firm providing regulated services is required to deal with client funds.
- Historically, solicitors were subject to detailed and prescriptive Accounts Rules. HOWEVER, in June 2017 the SRA
announced that, in its view, the length and complexity of the Accounts Rules 2011 made it difficult for new entrants to the
market to understand what was required of them, as well as for consumers to understand what to expect when a firm
handled their money.
Further, many firms found themselves in technical breach of the Accounts Rules 2011 in circumstances where there
were no real risks to client money.
- The SRA announced that it proposed to:
(a) Simplify the Accounts Rules
By focusing on key principles + requirements for keeping client money safe; including:
(i) Keeping client money SEPARATE from the firms own money
(ii) Ensuring client money is returned promptly at the end of a matter;
(iii) Using client money only for its intended purpose;
(iv) Proportionate requirements for firms to obtain an annual accountant report; AND
(b) Support the Account rules
With an online toolkit consisting of guidance and case studies to aid compliance
SUMMARY
RULE 4 - A firm must keep CLIENT money SEPARATE from the firms own money
Subject to exceptions, client money MUST be paid into a client bank account promptly and must keep separate
from the firms own money
Fund from mixed payments must be allocated promptly to the correct bank account
RULE 5.3 - Firms must NEVER withdraw more client money for a client than is held in the client bank account
for that client
RULE 7 – Clients are usually (not always) entitled to interest on client money held for them by solicitors
RULE 8 – All dealings with client money MUST be recorded
1
TIFF LIAO
,Intro to PP – WS1 Solicitors Accounts TIFF LIAO
Chapter 9 – The SRA Accounts Rules (page 89)
PRINCIPLES
GOVERNING THE RULES
- IN THE PAST: SRA regulated ONLY solicitors
- The arrival of alternative business structures in October 2011 means that legal services now also be provided by multi-
disciplinary practices and by firms owed by non-lawyers
- The SRA hopes to regulate ALL those providing legal services and has rewritten its Account Rules and it’s Code of
Conduct so that they do not refer specially to solicitors.
anyone who is regulated by the SRA will have to follow the same rules
- PURPOSE: Designed to reduce the risk of accidental or deliberate misuse of client money AND to protect clients from
the risks of accidental or deliberate mishandling of their money
Those regulated by the SRA MUST follow SEVEN pervasive principles
(Defines the fundamental ethical and professional standards that the SRA expects of all firms and individuals it regulates,
incl. non-lawyer owners)
You act:
1. In a way that upholds the constitutional principle of the rule of law, and
the proper administration of justice
2. In a way that upholds public trust and confidence in the solicitors
profession and in legal services provided by authorised persons
3. With independence
4. With honesty
5. With integrity
6. In a way that encourages equality, diversity, and inclusion
7. In the best interest of each client
WHO
IS BOUND BY THE RULES?
- RULE 1.1 – the Rules apply to authorised bodies, their managers and employees, and reference to
‘you’ in the Rules should read accordingly
- Authorised body’s managers = JOINTLY AND SEVERELY responsible for compliance with the
Rules by the authorised body, it’s managers and employees
In relation to a licensed body = the Rules apply ONLY in respect of activities regulated by the
SRA in accordance with the terms of it’s license (RULE 1.2 and RULE 1.3)
CLIENT
MONEY
- RULES 2–4 set out what an authorised body (referred to as ‘a firm’ in the rest of this chapter) must do with client money
as defined in RULE 2.1.
- RULE 4.1 requires CLIENT money to be kept SEPERATE from the money belonging to the firm (usually in a separate
client bank account).
Beyond that, no requirements are imposed on what the firm does with its own money.
- Client = person for whom you act.
- Client money = definition goes beyond holding money for a client. RULE 2.1(B) AND (C) extends the meaning of client
money significantly from RULE 2.1 which states that client money is money held or received by a firm:
(a) relating to a regulated services delivered by you to a client;
(b) on behalf of a 3rd party in relation to regulated services delivered by you (such as money held as an
agent, stakeholder, or held to the senders order);
(c) as a trustee or as the holder of a specified office or appointment, such as a donee of a power of
2
TIFF LIAO
, Intro to PP – WS1 Solicitors Accounts TIFF LIAO
Chapter 9 – The SRA Accounts Rules (page 89)
attorney, Court of protection deputy or trustee of an occupational pension scheme;
(d) in response of your fees and any unpaid disbursements if held or received PRIOR to delivery of a bill
for the same
The definition of client money does NOT include money received for disbursements which have
ALREADY been paid, so where money is received in reimbursement of such a payment, it is a receipt of
BUSINESS money by the firm. Being business money, it will be paid into a business bank account.
In Challinor and Others v Juliet Bellis & Co and Another [2013] EWHC 347 (Ch), Hildyard J made the point
that a solicitor has a duty to clarify any ambiguity as to whom client money is held for.
- Fees = your own charges or profit costs (incl. any VAT element)
- Disbursements =any costs or expenses paid OR to be paid to a 3rd party on behalf of the client or trust (including
any VAT element) save for office expenses such as postage and courier fees
- Costs = fees and disbursements (covers both)
The effect of RULE 2.1(D)
- Is that money received for all fees AND future disbursements paid to the firm is considered CLIENT money UNLESS
until billed.
- Such receipts must therefore be held in a CLIENT account (UNLESS they are the ONLY categories of CLIENT money
held by the firm and the firm takes advantage of the exemption in Rule 2.2.
- Such money is often referred to as money received ‘generally on account of costs’.
- Its use is dealt with under RULE 4.3.
A firm might wish to send a bill to a client for its anticipated future fees and disbursements with a view to paying the money
received in payment of that bill into the firm’s BUSINESS account
Thus ESCAPING the requirement that would apply under RULE 2.1 (D) to pay money received for unbilled fees and
unpaid disbursements into the CLIENT bank account.
This is permitted but there are reasons why firms should be cautious about billing for such future items.
Exercise: Client or business money?
Firm receives £1,000 generally on account of costs. Generally on accounts of costs
CLIENT money held in the client bank account
can be used to make payments on the clients
behalf
Firm makes a payment of £100 from its business bank money received for a paid disbursement
account for a client. The client gives the firm £100 in BUSINESS money in the business bank account
reimbursement.
Firm bills client for professional charges of £500 for future payment of bill ALWAYS BUSINESS money in
work plus £100 to cover a future disbursement. The the business bank account
client pays £600
Must NOT ALLOW a client account to be used as a banking facility unrelated to any underlying transaction which the solicitor
is carrying out.
Case of Fuglers & Others v SRA sets out 3 reasons:
(1) Objectifiable Solicitors to an extent are NOT acting as solicitors, rather trading on the trust and reputation which they
in itself acquire through their status as solicitors in circumstances where such trust would not be justified by the
regulatory regimen - Solicitors are facilitating day-to-day commercial trading like banks but are not
qualified to act as bankers.
(2) Risk Allowing a client bank account to be used as a banking facility, unrelated to any underlying transaction
which the solicitor is carrying out, carries with it the obvious RISK that the account may be used by the
client for money laundering.
Rule 14.5 (predecessor to Rule 3.3) was intended to reduce the risk.
(3) (risk) of In an insolvency context allows the client to achieve what would normally be impossible – banks
insolvency normally withdraw facilities upon notification that there has been a winding up petition
3
TIFF LIAO
