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Solicitors be mindful - you are not a bank!

Article posted: 17th January 2017

The SAR Rule (14.5) preventing a firm’s client account being used as a banking facility has made the news over the last couple of months with a spate of recent disciplinary tribunals and court judgements against solicitors.

The SAR Rule is explicit and states that there must be a legal transaction underpinning the movement of client money.

Solicitors trying to accommodate a client, however innocently, have been caught out and fined. And while a client may have a multitude of reasons for wanting to move money through solicitors rather than their bank (ease, lack of charges, trust etc), the Solicitors Regulatory Authority (SRA) would view this as ‘doing the bidding’ of a client - something that the rules were designed to prevent.

Since 1998, guidance note (ix) to Rule 15 of the Solicitors Accounts Rules 1998 has warned solicitors of the need to exercise caution if asked to provide banking facilities through a client account and in 2004 the note was amended to state expressly that solicitors "should not provide banking facilities through a client account". In 2011, the guidance note was elevated to an Accounts Rule (Rule 14.5 of the SAR Accounts Rules 2011).

The SRA believe that no specialist knowledge is required to understand this Rule and will prosecute if they believe a solicitor is moving money or holding client money without a legal transaction attached to it.

The SRA has seen an increase in reports of client bank accounts being used improperly as banking facilities, with the attendant risks of involvement in financial crime or non compliant insolvency processes.

Note:
Rule 14.5 states 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.

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