Topic 1 - SRA Account Rules

Question 1

What is the primary responsibility of solicitors regarding client money?

Answer 1

To keep clients’ money safe and protected.

Question 2

What does the SRA Risk Outlook identify as a priority risk for solicitors?

Answer 2

Client money safety.

Question 3

What can happen if client money is not kept safe?

Answer 3

Transactions may fail, causing inconvenience and distress for clients.

Question 4

What serious consequences can result from breaches of client money rules?

Answer 4

Proceedings before the Solicitors Disciplinary Tribunal, including potential striking off.

Question 5

What is a key recommendation from the SRA regarding client money breaches?

Answer 5

Report the breach promptly, even if the money has been replaced.

Question 6

What are some recommended controls for protecting client money?

Answer 6

• Good accounting systems
• Staff vetting, training, and supervision
• Business succession and contingency plans
• Strong IT systems with backups
• Regular account reconciliations

Question 7

Is the responsibility for keeping client money safe limited to compliance officers?

Answer 7

False, all solicitors are responsible.

Question 8

What is the SRA Accounts Rules’ scope?

Answer 8

Regulates how solicitors handle money belonging to clients, including trust money.

Question 9

Who is responsible for compliance with the SRA Accounts Rules?

Answer 9

The authorised body’s managers are jointly and severally responsible.

Question 10

How many sections are the SRA Accounts Rules split into?

Answer 10

Four sections.

Question 11

What is the largest section of the SRA Accounts Rules focused on?

Answer 11

Client money and client accounts.

Question 12

What must an authorised body do if it has held or received client money during an accounting period?

Answer 12

Obtain and deliver an accountant’s report within six months.

Question 13

What triggers the requirement to deliver an accountant’s report to the SRA?

Answer 13

If the report is qualified due to failure to comply with the Accounts Rules.

Question 14

Fill in the blank: Breaches arising from administrative errors are not likely to be _______.

Answer 14

significant.

Question 15

What are some examples of factors that could lead to a qualified accountant’s report?

Answer 15

• Significant shortfall on client account
• Actual or suspected fraud
• Missing accounting records
• Failure to carry out bank reconciliations

Question 16

Under what conditions is an accountant’s report not required?

Answer 16

• All client money is from the Legal Aid Agency
• Average client money held does not exceed £10,000
• Maximum client money held does not exceed £250,000

Question 17

What is Rule 8.2 related to?

Answer 17

The obligation to obtain bank/building society statements for all client accounts.

Question 18

What is a ‘statement or passbook balance’ as defined in Rule 12.2?

Answer 18

The total balance of all client accounts held or operated by you and any joint accounts and clients’ own accounts operated by you

This is shown by the statements obtained under rule 8.2.

Question 19

What is the frequency required for obtaining bank/building society statements according to Rule 8.2?

Answer 19

At least every five weeks

This is necessary for all of the authorised body’s client accounts and business accounts.

Question 20

Under what conditions can an authorised body be exempt from obtaining an accountant’s report according to Rule 12.2?

Answer 20

If all client money held is from the Legal Aid Agency or if the average balance on client account(s) does not exceed £10,000 and the maximum balance does not exceed £250,000

These exemptions apply only for the relevant accounting period.

Question 21

What can the SRA require under Rule 12.4?

Answer 21

To obtain or deliver an accountant’s report to the SRA on reasonable notice if the authorised body ceases to operate as an authorised body and to hold or operate a client account

This can also happen if the SRA considers it is in the public interest.

Question 22

What is the requirement for the accountant preparing a report under Rule 12.5?

Answer 22

The report must be prepared and signed by an accountant who is a member of one of the chartered accountancy bodies and who is, or works for, a registered auditor.

Question 23

What are the conditions under which the SRA may disqualify an accountant from preparing a report according to Rule 12.6?

Answer 23

If the accountant has been found guilty of professional misconduct or has failed to exercise due care and skill in the preparation of the report

This is determined by the SRA.

Question 24

What details must be provided to an accountant preparing a report under Rule 12.8?

Answer 24

Details of all accounts held or operated by you in connection with your practice and all other information required by the accountant

This is necessary for the completion of their report.

Question 25

How long must accounting records be retained according to Rule 13.1?

Answer 25

At least six years.

Question 26

What types of records are included in the accounting records?

Answer 26

* Bank and building society statements * Accountants’ reports * Client’s written instructions to hold client money * Records relating to third-party managed accounts * Any other records necessary to show compliance with the SRA Accounts Rules

Question 27

What is the definition of a joint account according to SRA Guidance?

Answer 27

An account where the solicitor/authorised body and another person operate the account together.

Question 28

What risks are associated with joint accounts as per SRA Guidance?

Answer 28

The risks to a client’s money could be higher due to equal access by both operators of the joint account.

Question 29

What must be done to mitigate risks associated with joint accounts?

Answer 29

Consider implementing a joint signature mandate.

Question 30

What does Rule 10.1 state regarding a client’s own account?

Answer 30

Part 2 of these rules does not apply save for rules regarding statements, reconciliations, and bills.

Question 31

What is required under Rule 8.3 when operating a client’s own account?

Answer 31

Complete, at least every five weeks, a reconciliation of the bank/building society statements balance with the cash book balance and client ledger total.

Question 32

What is the requirement for third party managed accounts according to Rule 11.1?

Answer 32

You may use a third party managed account only if it does not result in you receiving or holding the client’s money.

Question 33

What is a third party managed account (TPMA)?

Answer 33

An account held at a bank or building society in the name of a third party, which is an authorised payment institution, where monies are owned beneficially by the third party ## Footnote Operated upon terms agreed between the third party, you, and your client as an escrow payment service.

Question 34

Under what conditions can you use a TPMA?

Answer 34

Only if: * The use of the account does not result in you receiving or holding the client’s money. * You take reasonable steps to ensure the client understands the terms of the contractual arrangements. ## Footnote This includes how fees will be paid and the client's rights to terminate the agreement.

Question 35

What must you do regarding regular statements from the TPMA provider?

Answer 35

You must obtain regular statements and ensure they accurately reflect all transactions on the account. ## Footnote This is in accordance with Rule 11.2.

Question 36

What does Rule 11.1(a) state regarding client money and TPMA?

Answer 36

The authorised body must ensure that using the TPMA does not result in them receiving or holding the client’s money. ## Footnote Otherwise, they would be dealing with client money and Part 2 of the SRA Accounts Rules would apply.

Question 37

What are the obligations of the authorised body concerning client information?

Answer 37

The authorised body must ensure the client is informed of and understands: * Their rights and obligations regarding the TPMA. * Any charges or fees they are liable to pay. * Their right to terminate the agreement and dispute payment requests. ## Footnote These obligations are outlined in Rule 11.1(b).

Question 38

True or False: Money held in a TPMA is considered client money under the SRA Accounts Rules.

Answer 38

False ## Footnote Money in a TPMA does not fall under the definition of client money as it is not held or received by the authorised body.

Question 39

What must the TPMA be regulated by?

Answer 39

The FCA (Financial Conduct Authority) ## Footnote It must also be an authorised payment institution or similar.

Question 40

What is the minimum retention period for accounting records related to TPMA?

Answer 40

At least six years ## Footnote This is in accordance with Rule 13.1 regarding storage and retention of accounting records.

Question 41

What should you do if you use multiple TPMA providers?

Answer 41

You must notify the SRA of all providers used and any switches between providers or if you stop using a TPMA provider. ## Footnote This is to ensure the SRA can update their records.

Question 42

Fill in the blank: A TPMA must be operated as an ________ payment service.

Answer 42

escrow ## Footnote This means the third party receives and disburses money on your and your client’s behalf.

Question 43

What does the SRA Guidance say about the decision to use a TPMA?

Answer 43

The decision must be appropriate in each case to meet the obligation to protect client money and assets. ## Footnote This is related to Principle 7 of the SRA Code of Conduct.