SRA

Question 1

Define “client money” as per Rule 2.1.

Answer 1

Money held or received by the firm:
a) For regulated services provided to clients.
b) On behalf of third parties.
c) As a trustee or holder of a specified appointment.
d) As advance payment for fees or disbursements before billing.

Question 2

What does Rule 4.1 require regarding client money?

Answer 2

Client money must be kept separate from the firm’s own money, typically in a client bank account.

Question 3

What are “mixed receipts”?

Answer 3

Payments received by the firm that include both client money and firm money (e.g., fees).

Question 4

What steps must a firm take with mixed receipts?

Answer 4

Allocate funds “promptly” to the correct account per Rule 4.2.

Question 5

When can client money be withdrawn according to Rule 5.1?

Answer 5

a) For the purpose for which it is held.
b) On client or third-party instructions.
c) With SRA authorisation

Question 6

Where must a client bank account be located?

Answer 6

At a bank or building society in England or Wales (Rule 3.1).

Question 7

Why must “client” be in the account title?

Answer 7

To clearly distinguish it from the firm’s own business accounts (Rule 3.2).

Question 8

What does Rule 3.3 prohibit regarding client accounts?

Answer 8

Using client accounts to provide banking facilities for clients or third parties.

Question 9

What are three risks of using client accounts as banking facilities?

Answer 9

1. It is inherently objectionable.
2. It risks money laundering.
3. It may lead to insolvency issues.

Question 10

What is a “residual client account balance”?

Answer 10

Money left in the client account that cannot be returned because the client cannot be identified or traced.

Question 11

What are the requirements for handling residual balances ≤£500?

Answer 11

1. Pay to a charity.
2. Record reasonable steps taken to return money to the rightful owner.
3. Maintain records for six years.

Question 12

When is interest on client money not required to be paid?

Answer 12

When there is a written agreement with the client or third party specifying otherwise (Rule 7.2).

Question 13

When can client money be transferred for fees or disbursements?

Answer 13

After delivering a bill or written notification to the client, and only for the specific amount covered.

Question 14

Can money be transferred for unpaid disbursements?

Answer 14

No, Rule 5 allows transfers only for disbursements that have already been paid or incurred.

Question 15

What risks does billing for anticipated fees and disbursements involve?

Answer 15

1. Client may terminate the retainer and request repayment.
2. Matter may not proceed.
3. Sole practitioner’s incapacity or death.
4. Firm insolvency may result in client funds being unavailable.

Question 16

What does Rule 8.1(a) require regarding client ledgers?

Answer 16

Maintain a ledger for each client, identified by name and matter description.

Question 17

How often must client bank account reconciliations be performed?

Answer 17

At least every five weeks (Rule 8.3).

Question 18

What records must be kept centrally according to Rule 8.4?

Answer 18

Bills and other written notifications of costs in a readily accessible form.

Question 19

When must an accountant’s report be delivered to the SRA?

Answer 19

Within six months of the accounting period end if the report is qualified for rule breaches that put client funds at risk.

Question 20

What are the exemptions from obtaining an accountant’s report?

Answer 20

1. All client money is from the Legal Aid Agency.
2. Client money held/received averages ≤£10,000, and maximum balance does not exceed £250,000.

Question 21

What does Rule 1.1 specify?

Answer 21

The rules apply to all authorised bodies, their managers, and employees.

Question 22

What is the significance of Rule 2.3?

Answer 22

Client money must be paid promptly into a client bank account, with limited exceptions (e.g., Legal Aid payments, specific client arrangements).

Question 23

When does Rule 5.2 apply to withdrawals?

Answer 23

All withdrawals must be appropriately authorised and supervised.

Question 24

What is required by Rule 11 regarding 3rd Party Managed Accounts (TPMAs)?

Answer 24

1. No client money should be received or held by the firm.
2. Clients must be informed about the terms, fees, and their rights to terminate the TPMA.

Question 25

How does Rule 4.3 regulate moving money from client to business accounts?

Answer 25

A bill or written notification must be provided to the client, and the amount must correspond to what is held for them.

Question 25

What does the SRA guidance say about solicitors acting as deputies?

Answer 25

Using client accounts for P’s funds doesn’t breach Rule 3.3 if it aligns with the deputy’s legal obligations and client interests.

Question 25

What are a solicitor’s obligations under Rule 8.2?

Answer 25

Obtain bank statements for all client and business accounts at least every five weeks.

Question 26

What additional steps are required for residual balances over £500?

Answer 26

Firms must seek SRA authorisation before withdrawing the money from the client account.

Question 27

What does the SRA warning notice say about suspicious transactions?

Answer 27

* Question why funds are received or payments are requested. * Ensure there are no risk factors indicating transactions are not genuine. * Avoid using client accounts improperly, as it may lead to breaches and facilitate money laundering.

Question 28

What are the three primary risks outlined in SRA cases related to misuse of client accounts?

Answer 28

1. Objectionable practice. 2. Money laundering risk. 3. Insolvency risk.

Question 29

What does Rule 7.1 require regarding interest payments to clients?

Answer 29

Firms must account for a fair sum of interest unless there is an alternative written agreement.

Question 30

What must a cash book record according to Rule 8.1(c)?

Answer 30

All transactions made through client bank accounts.

Question 31

What are the requirements for maintaining a central register for residual balances paid to charities?

Answer 31

1. Record client’s name, amount, recipient charity, and date of payment. 2. Retain receipts and indemnity confirmations from the charity.

Question 32

How does the Solicitors Act 1974 relate to client accounts?

Answer 32

Section 85(2) ensures that banks cannot claim client account funds to settle the solicitor’s liabilities.

Question 33

What does the SRA permit regarding billing for anticipated fees?

Answer 33

Permits billing for future work or disbursements if risks such as client termination or insolvency are managed.

Question 34

What must be included in a bill or notification before transferring client funds for costs?

Answer 34

A specific sum that matches the amount held for the client.

Question 35

When do Rules 2-8 not apply to client or joint accounts?

Answer 35

When the account is a joint account or the client’s own account, except for obtaining statements and keeping central records of costs.

Question 36

What must be done if a TPMA is terminated by a client?

Answer 36

The firm must ensure a smooth transition to another arrangement that safeguards the client’s money.

Question 37

What are the exceptions under Rule 2.3 for not depositing client money into a client account?

Answer 37

1. Money held as a trustee conflicts with obligations. 2. Legal Aid Agency payments for costs. 3. Written client agreements for alternative arrangements.

Question 38

What is the role of the Court Funds Office in deputyship cases?

Answer 38

The Office of the Public Guardian recommends using a designated deposit account or the Court Funds Office instead of a client account.