After months of waiting, the SRA recently issued a warning notice, guidance and case studies on providing banking facilities through client account, otherwise known as rule 14.5 of the SRA Accounts Rules. The guidance can be found here.
We have been calling for this for months as, whilst this may seem like a straightforward matter, often in practice it is not. The SRA’s previous guidance was not particularly helpful, and the old examples given by the SRA, such as acting for a football club, were not relevant to most firms.
We are pleased to report that the new guidance is very helpful, particularly the case studies, where the SRA has explained why they believe a breach has or has not arisen, and made suggestions on how to avoid a breach. There are 11 case studies altogether, covering a range of scenarios, including:
- instructing foreign lawyers;
- holding unconnected money in a client account;
- unconnected payments from client account;
- trust administration work;
- commercial and residential rent deposits; and
- collation of investment funds.
It is clear that the SRA is taking this issue very seriously. The news release issued with the new guidance notes that, in the last 12 months, the SRA has prosecuted 20 solicitors and three firms at the SDT for breaching rule 14.5. Three solicitors were struck off, two more were suspended, and the SDT has levied fines of £763,000, including one fine of £500,000.
To remind you, rule 14.5 states that law firms “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.”
We strongly recommend that you read the guidance, circulate it to all fee earners and accounts staff, and check that you are not breaching rule 14.5. In particular, we would suggest that you double-check any rent deposits, as the SRA has made it clear that they do not like firms holding them.
Please feel free to get in touch if you have any questions.