Topic 2 - Client Money

Question 1

What is client money?

Answer 1

Money held or received by authorized bodies relating to regulated services delivered to a client or on behalf of a third party

Includes money held as a trustee or for unpaid disbursements.

Question 2

What does Rule 4.1 of the SRA Accounts Rules state?

Answer 2

Client money must be kept separate from money belonging to the authorized body.

Question 3

What is the definition of client money according to Rule 2.1?

Answer 3

Client money is money held or received relating to regulated services, on behalf of a third party, as a trustee, or for fees and unpaid disbursements before billing.

Question 4

Give an example of client money.

Answer 4

Money received from a client ‘on account of costs’ for a property purchase.

Question 5

True or False: Money received for paid disbursements is considered client money.

Answer 5

False.

Question 6

What is non-client money?

Answer 6

Money received or held that does not fall within the definition of client money according to Rule 2.1.

Question 7

Provide an example of non-client money.

Answer 7

Money received from a client as reimbursement for a paid disbursement.

Question 8

Why do we need a client account?

Answer 8

To keep client money separate from the authorized body’s money.

Question 9

What must the name of a client account include?

Answer 9

The name of the authorized body and the word ‘client’.

Question 10

What is the requirement for payments into a client account according to Rule 2.3?

Answer 10

Client money must be paid promptly into a client account unless it falls under specific exceptions.

Question 11

What are the exceptions to promptly paying client money into a client account?

Answer 11

• Money held as trustee
• Payments from the Legal Aid Agency
• Alternative arrangements agreed with the client

Question 12

What is Rule 2.2 concerning client money?

Answer 12

It allows holding client money outside a client account if certain conditions are met.

Question 13

What must a firm do if it holds client money outside a client account under Rule 2.2?

Answer 13

Inform the client where and how the money will be held.

Question 14

What does Rule 2.5 state regarding client money?

Answer 14

Client money must be returned promptly when there is no longer a proper reason to hold it.

Question 15

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

Answer 15

The authorized body must keep accurate records showing receipts and payments of client money.

Question 16

What is the consequence of using client money for unauthorized purposes?

Answer 16

It would be a serious breach of the Rules.

Question 17

What does the term ‘disbursements’ refer to in the context of client money?

Answer 17

Costs or expenses paid on behalf of the client, excluding office expenses.

Question 18

What is a key characteristic of regulated services?

Answer 18

These are legal and other professional services regulated by the SRA.

Question 19

What is the definition of ‘fees’ according to the SRA Glossary?

Answer 19

Your own charges or profit costs including any VAT element.

Question 20

What does Rule 2.2 of the SRA Accounts Rules state regarding client money held outside a client account?

Answer 20

Accounts Rules do not apply to client money held outside a client account.

Question 21

What is the obligation stated in Rule 2.3 concerning client money?

Answer 21

The obligation to pay client money promptly into a client account does not apply if there is no client account.

Question 22

According to Rule 2.4, does client money have to be available on demand?

Answer 22

No, the client money does not have to be available on demand.

Question 23

What does Rule 4.1 state about client money?

Answer 23

Client money doesn’t have to be kept separate from money belonging to the authorised body.

Question 24

What is required regarding the client ledger under Rule 2.2?

Answer 24

A client ledger must be kept showing receipts and payments of the client money held.

Question 25

Does Rule 7 on accounting to the client for interest on client money apply under Rule 2.2?

Answer 25

No, Rule 7 does not apply.

Question 26

What must happen if money is improperly withheld from a client account according to Rule 6.1?

Answer 26

The money must be immediately paid into the client account.

Question 27

When can you withdraw client money from a client account according to Rule 5.1?

Answer 27

You can withdraw client money for the purpose for which it is being held, following client instructions, or with SRA’s prior written authorisation.

Question 28

What does Rule 5.2 require regarding withdrawals from a client account?

Answer 28

All withdrawals must be appropriately authorised and supervised.

Question 29

What does Rule 5.3 specify about sufficient funds?

Answer 29

You can only withdraw client money if sufficient funds are held for that specific client.

Question 30

What is mixed payment as defined in the SRA Glossary?

Answer 30

A mixed payment is a payment that includes both client money and non-client money.

Question 31

According to Rule 4.2, what must you do with funds from mixed payments?

Answer 31

You must allocate promptly any funds from mixed payments to the correct client account or business account.

Question 32

What is required if a cheque includes both client money and non-client money?

Answer 32

You must allocate the client money part of the cheque to the client account and the non-client money part to the business account.

Question 33

What does Rule 2.1(d) state regarding payments after a bill has been delivered?

Answer 33

Payments received after a bill for the authorised body’s fees has been delivered are non-client money.

Question 34

What must be done with non-client money in the client account according to Rule 4.1?

Answer 34

Non-client money must be transferred out of the client account.

Question 35

What are separate designated client accounts?

Answer 35

They are additional client bank accounts opened to hold individual client's money.

Question 36

What must the name of a client account include according to Rule 3?

Answer 36

The name must include the name of the authorised body and the word 'client'.

Question 37

Fill in the blank: Client money must be kept ______ from money belonging to the authorised body according to Rule 4.1.

Answer 37

separate

Question 38

True or False: All money received by the authorised body is client money.

Answer 38

False

Question 39

What happens if a client transfers a mixed payment to the client account?

Answer 39

You must promptly move the non-client money element into the business account.

Question 40

What is the prescribed circumstance for withdrawing residual client account balances of less than £500?

Answer 40

The balance must be paid to a charity of the authorised body’s choice.

Question 41

What is required when a client instructs you on a new matter regarding client money?

Answer 41

The client money must be withdrawn or transferred to them if there is no proper reason to hold it.

Question 42

What must be done with client money belonging to the authorised body?

Answer 42

It must be transferred out of the client account due to Rule 4.1.

Question 43

What does Rule 4.1 state regarding client money?

Answer 43

Client money must be kept separate from money belonging to the authorised body.

Question 44

What is a mixed payment?

Answer 44

A payment including both client money and non-client money.

Question 45

What does Rule 4.2 of the SRA Accounts Rules require?

Answer 45

You must ensure that you allocate promptly any funds from mixed payments to the correct client account or business account.

Question 46

What steps must be taken when a mixed payment is received?

Answer 46

The non-client money element must be promptly withdrawn from the client account and transferred to the business account.

Question 47

What does Rule 4.3 state about holding client money used to pay costs?

Answer 47

You must give a bill of costs to the client before transferring any client money from a client account to make the payment.

Question 48

What conditions must be met to transfer client money to pay a bill of costs?

Answer 48

A bill must be given to the client, the payment must be for the specific sum in the bill, and the client must have sufficient money held on their behalf.

Question 49

What does Rule 6.1 require when breaches of the rules are discovered?

Answer 49

You must correct any breaches promptly upon discovery.

Question 50

What must be done if money is improperly withdrawn from a client account?

Answer 50

The money must be immediately replaced in the client account.

Question 51

What does SRA Guidance advise regarding client ledger debit balances?

Answer 51

Client ledger debit balances should be fully investigated and rectified promptly.

Question 52

How must client money be handled according to the summary of the rules?

Answer 52

Client money must be kept separate from money belonging to the authorised body and placed into a client account.

Question 53

What is prohibited regarding the authorised body’s client account?

Answer 53

It must not be used to provide banking facilities to clients.

Question 54

Under what conditions can withdrawals from the client account occur?

Answer 54

Withdrawals must be authorised and supervised, and only if the particular client has sufficient funds.

Question 55

When must a client’s money be returned to them?

Answer 55

Promptly as soon as there is no longer a proper reason to hold the funds.

Question 56

What is required for a transfer of money out of the client account under Rule 4.2?

Answer 56

It is required when a mixed payment has been paid into the client account.

Question 57

What is the condition for transferring money out of the client account under Rule 4.3?

Answer 57

The payment must be for the specific sum in the bill and the client must have sufficient money in the client account.

Question 58

What does Rule 6.1 specify about improperly withdrawn money?

Answer 58

It must be immediately replaced in the client account.