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Solicitors' Accounts Flashcards

(48 cards)

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1
Q

What is the SRA’s risk outlook?

A

Something setting out what the SRA think is the key risks and challenges facing the profession

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2
Q

What was one of the SRA’s key risks in 2020?

A

Client money

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3
Q

What should you do if any client money is lost or taken?

A

Report the breach to the SRA very promptly - even if you / the firm have already replaced the money

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4
Q

What must firms have in order to protect money? What should they do to make sure that client money is as safe as possible?

A

Good accounting systems

Train staff, make sure everyone knows about issues with keeping client money safe

Have a business succession plan / contingency plans if accounting staff leave

Good IT backups

Reconcile accounts every 5 weeks

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5
Q

Who in a firm is responsible for keeping client money safe?

A

Everyone - not just compliance officers.

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6
Q

What can client money breaches lead to for solicitors?

A

Proceedings before SDT including strike off

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7
Q

What types of money do the SRA Accounts Rules apply to?

A

Firms / sole practices who are authorised by the SRA to receive or deal with money belonging to clients including trust money / money held on behalf of third parties

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8
Q

Who do SRA Accounts rules apply to?

A

Authorised bodies, managers and employees

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9
Q

Who is responsible for compliance by an authorised body?

A

Authorised body’s managers are jointly and severally responsible

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10
Q

What is the SRA Rule on Accountants’ Reports?

A

If you have at any time during an accounting period held or received client money, or operated a joint account / client’s own account as signatory

you must
- get an accountant’s report for that period, within 6 months of the end of the period

  • deliver it to the SRA within 6 months of the end of the accounting period ONLY IF the accountant’s report shows a failure to comply with rules e.g. money belonging to clients is / has been placed at risk
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11
Q

How does the SRA approach ‘qualified’ accountants reports?

A

Reports are only qualified (e.g. raised to the SRA) if breaches are significant

Administrative error breaches are not likely to be significant, but can be if they are persistent / stem from a breakdown of control

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12
Q

What does the SRA say would be enough to consider a report ‘qualified’?

A

Significant / unreplaced shortfall on client account

Actual / suspected fraud

Unavailable records including bank accounts / ledgers failing to include reference to a client

no reconciliations of client account banks

Client account improperly used as a banking facility

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13
Q

When can the SRA require an accountant’s report from the firm?

A
  • If the authorised body has ceased to operate as an authorised body and to hold / operate a client account i.e. final report
  • SRA considers that it is in the public interest to demand a report
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14
Q

When is there no need to obtain an accountant’s report?

A

if the total balance of all client accounts held / operated

  • Is from the Legal Aid Agency
  • Balance of client money held / received does not exceed an average of £10,000 or a maximum of £250,000 [or equivalent in currency]
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15
Q

What requirements are needed for the accountant’s report?

A

Accountant needs to be a member of a chartered accountancy body and work for / be a registered auditor

Report - must be in a form prescribed by the SRA

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16
Q

When can an account be disqualified from preparing reports?

A

Accountant has been found guilty of professional misconduct

SRA is happy that accountant has not exercised due care and skill in preparing reports

Sometimes the SRA can specify certain matters that you should ensure are incorporated into the terms on which an accountant is engaged

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17
Q

What must a law firm provide to accountants?

A

details of all accounts

any other information / documentation that the accountant requires to complete their report

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18
Q

How long must accounting records be stored for?

A

At least 6 years

Includes any records or documents necessary to show compliance with SRA accounts rules

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19
Q

How does SRA Guidance approach a joint account between a solicitor and a client?

A

Not a client account, but money held in a joint account is still client money

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20
Q

How must a solicitor approach the joint account?

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A

Consider the risks in every transaction, and consider action you could take to mitigate those risks

21
Q

Which SRA Accounts Rules apply to joint accounts?

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A

Who in the authorised body the rules apply to

Obtaining every 5 weeks statements from banks / building societies etc for all client accounts and business accounts

Keeping readily accessible a central record of all bills / notifications of costs

22
Q

How long should any accounting records of joint accounts be kept?

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A

at least 6 years

23
Q

If you operate a client’s own account as a signatory, what rule specifically applies? What general rule applies?

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A

Every 5 weeks you must reconcile the statements balance for the account with the cash book balance / client ledger total so that you can promptly investigate and resolve any differences shown by reconciliation.

Requirement to obtain accountant’s report

6 year retention period

24
Q

When can a solicitor enter into an arrangement with a client to use a third party managed account (TPMA)?

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A

For the purpose of receiving payments from or on behalf of the client in respect of regulated services delivered by you to the client only if:

  • Using the account does not result in you receiving or holding the client’s money
  • You take reasonable steps before accepting instructions to check that the client is informed of and understands the following:
  • Terms of the contractual arrangements relating to the use of the TPMA; how any fees will be paid an dwho will bear them
  • Client’s right to terminate agreement and dispute payment requests by you
25
What must a solicitor do if a TPMA is being used?
Obtain regular statements which accurately reflect all transactions on the account
26
What is the definition of a TPMA?
An account held at a bank / building society in the name of a third party which is an authorised payment institution regulated by the FCA, in which monies are owned beneficially by the third party, and which is operated upon terms agreed between the third party, you, and your client as an escrow payment service
27
Which Accounts Rule does not apply to TPMAs, and which does?
No need to get an accountant's report But - you must store accounting records for at least 6 years
28
Is money held in a TPMA client money?
No - it is not held or received by the authorised body but the authorised body must obtain statements from the provider regularly
29
What must authorised bodies ensure when using a TPMA?
They must ensure that using the TPMA does not result in them receiving / holding the client's money Take reasonable steps to ensure the client is informed of / understands: - Rights and obligations; fees - Right to terminate an agreement / dispute payment requests you make Obtain regular statements and ensure these reflect transactions on the account correctly
30
What financial requirements are there for a TPMA?
Regulated by the FCA An authorised payment institution which has adopted voluntary safeguarding arrangements to a high level Account at a bank / building society Operated as an escrow payment service Monies in the TPMA must be owned beneficially by the third party.
31
Does an authorised body need permission from the SRA to use a TPMA?
No - but they should notify the SRA, by filling out a TPMA form. More than one TPMA provider used - SRA should be notified of all providers used - inform of any switches between providers.
32
What is client money?
Money held or received by an authorised body regarding the following: - Regulated services delivered by you to a client - On behalf of a third party in relation to regulated services delivered by you - As a trustee / holder of a specified office - In respect of your fees and any unpaid disbursements if held / received prior to a delivery of a bill for the same
33
Is money held or received in relation to a paid disbursement client money?
No - it is not client money When bills become due, it converts them from client money to non client money
34
What should the name of any client account include?
Name of any authorised body Word 'client' to distinguish it from others
35
What restrictions are there on the client account?
Any payments into, or withdrawals from / transfers of money out of client account must be made in respect of the delivery of legal services to the client.
36
What are the three exceptions to the rule that you need to ensure client money is paid promptly into a client account?
If money held as a trustee / holder of specified office / appointment ; money paying in would conflict with your obligations under rules or regulations relating to your specified office or appointment If client money is only LAA money If you agreed in the individual circumstances an alternative arrangement in writing with the client / third party for whom the money is held
37
When does an authorised body not need to hold client money in a client account?
if the only client money the body has is in respect of fees /unpaid disbursement prior to a delivery of a bill for the same AND any money held for disbursements related to costs or expenses incurred by the authorised body on behalf of the client If client has been properly advised and given enough information about where their money will be held; including explaining that money will not be ringfenced on insolvency
38
Which rules still apply to client money that is not held in a client account?
Should be returned promptly as soon as there is no longer a proper reason to hold the money Authorised body must have given the client a bill / other written notification of costs Authorised body should keep accurate records showing receipts / payments of client money in a client ledger
39
What rules do not apply to client money held outside a client account?
No obligation to pay money into client account promptly Client money does not have to be available on demand No need for fair sum of interest on client money No need to have a list of balances shown by client ledger accounts / no need for there to be a cash book showing transactions through the client account No need to have an accountant's report
40
What should you do if there are any breaches of the Accounts Rules?
Any money improperly withheld / withdrawn from a client account must immediately be paid into account or replaced
41
What do Accounts Rules say about interest?
Must account to clients / 3rd parties for a fair sum of interest on any client money
42
What duty do you have regarding funds from mixed payments? (client and non-client money)
Mixed payments must be allocated promptly to the correct client account or business account.
43
Where should non-client money be paid into?
The business account
44
When will a separate designated client account be opened?
Only when the specific client requests it All the same rules apply to this
45
What is a central principle about the client account?
any withdrawals from or transfers of money out of client account must be made in respect of the delivery of your legal services to the client.
46
When can you withdraw money from a client account?
For the purpose for which it is being held Following receipt of instructions from the client or the third party for whom the money is held On the SRA's prior authorisation In prescribed circumstances Always must be authorised and supervised Must be sufficient funds in respect to the particular client you are discussing.
47
What must you do if you are holding client money and some / all of it will be used to pay your costs?
You must give a bill of costs / other written notification of the costs incurred to the client or the paying party, before you send any money, and the bill must be for the specific sum identified in the bill of costs
48
if there is not enough money in the client account to pay a bill on their behalf, where should it be paid from?
Business account

Professional Conduct (10 decks)

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