Why A Solicitor’s Client Account Cannot Be Used As A ‘Banking Facility’ – And How To Stay Safe

All solicitors know that compliance with the SRA Accounts Rules is central to keeping on the right side of regulation. Keeping client money safe is a fundamental part of being a trusted regulated professional.

Having the ability to hold client funds in a client account enables solicitors to facilitate transactions. But SRA-regulated law firms must never offer pure ‘banking facilities’ through their client account.

In this post, we look at what a ‘banking facility’ actually means, why the SRA cares and what to look out for.

Look out for our upcoming webinar on this topic (26 July 2023 at 12pm – register with Lexology here), and sign up to our COLP Insider newsletter for recording links and future webinar invitations.

Read the full article here

ICYMI: Alert – New Russia Sanctions Outlaw Legal Advisory Services

The UK government has issued new wide-ranging sanctions to increase pressure on the Russian economy.

New laws severely limit access to legal services provided to businesses and individuals connected to Russia by British lawyers. This is in addition to previous restrictions on trust services.

Read the post to find out what you need to do

ICYMI: Why Law Firm IT Projects Fail: An Interview With Alex Hutchinson

Law firm IT projects are notoriously difficult to get right. We have all known law firms that have spent big on shiny new case management systems, only to find that it has little real world benefit. Or people just don’t use it in a way that realises the theoretical gains.

We spoke to Alex Hutchinson, the freelance IT director, to find out why law firm IT projects often fall down.

Read the full interview

News and Guidance

SRA Updates

• Deadline for submitting your firm’s diversity information is 23 July 2023 – Yes, it is a Sunday.
• Research and publications: Client protection, interventions and compensation fund – corporate report 2021/22 – The report shines a light on the number of firms subject to intervention (a significant fall of almost 50% during the covid pandemic); and claims made on the compensation fund (with probate accounting for the highest payouts in the latest data). In 2020/21 almost half of all compensation fund payments were down to a single intervention (Kingly Solicitors).
• Thematic Review: Lasting powers of attorney and deputyships – A snapshot of 30 firms found that the demand for these services is increasing, and that the quality of advice and service delivery by law firms is good. The SRA concluded it was “broadly satisfied” with the review.

Law Society Updates (may require login)

• [Gazette] News focus: Premium prices – trends in PII – New research commissioned by the professional body indicates that the the PII market is ‘softening’. This aligns with the conclusions of Gary Horswell (Pleasure Or Pain? Solicitors PII October Renewal Update (2023)). The report concludes that firms may not see a reduction in premium this year, particularly if they practice in ‘risky’ areas like property. Read our article for tips on how to reduce your PII costs.
• Law Society Parliamentary Briefing – This briefing on the recent round of Russia sanctions (Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2023), alerts the government to “serious and wide-ranging concerns” about the unintended consequences of the sanctions. The Society’s interpretation of the statutory instrument is that the law effectively prohibits UK lawyers advising clients about sanctions compliance, and will “harm non-Russian businesses more than Russian businesses”.
• Updated practice note: Disclosure of tax avoidance schemes

Other Updates

• Legal Services Consumer Panel press release: Fewer consumers shop around post pandemic – The 2023 ‘Tracker Survey’ found that fewer people are using comparison sites to find a lawyer, and that accurate price information is not widely accessible through firms’ websites. Among all of the statistics quoted in the report, however, overall client satisfaction levels remain high (85%), which is surely the most important metric.

Free webinars and recordings

Next webinar: The dangers of using your client account as a banking facility and how to avoid it

Operating a client account can be an interesting business! Not only do you have increased money laundering and financial crime risks, you must also avoid acting like a financial institution.

Accounts Rule 3.3 states: “You must not use a client account to provide banking facilities to clients or third parties” …. and this can be quite tricky to navigate. Several solicitors have been fined and disciplined by the SRA under this rule.

But how do you avoid getting this wrong? What is a ‘banking facility’ and how does the SRA interpret the rule?

Fear not, we are here to help! In this webinar we will look at:

1. The history of the ‘banking facility’ rule
2. Why can we not act as a bank?
3. SRA Guidance
4. Disciplinary decisions relating to Accounts Rule 3.3
5. Practical considerations for law firms

So come and join us, and let us guide you through this often daunting topic. And of course, you will have the opportunity to ask any of your burning questions.

Register for your free place here

Recording: Optimising your AML knowledge to ensure you are LSAG compliant

We were delighted to co-host this session with our friends at Thirdfort.

Unsurprisingly, we get asked many questions about source of funds, source of wealth, identification of clients, and the like. In the current world of regulation, we find many law firms are very nervous about ‘getting it wrong’ and want to ensure compliance.

In this webinar, our JBL team discussed some of these most common compliance queries with valuable input from Harriet Holmes of Thirdfort, including:

• Source of funds – how far do we need to go? How do I know I’m done?
• Source of funds – is the ‘Bank of Mum and Dad’ low risk?
• Source of wealth – can I take my client’s word for it?
• Risk assessment – do I need to do one at the start of every file?
• Ongoing monitoring – what should this look like in practice?
• Employee screening – we don’t DBS-check all our staff. Should we?
• Independent audit – how often does it need to be done?
• CDD – do I need to verify the identity of all the Directors of a client company?
• CDD – who do I need to verify in a trust?

Watch the recording

SRA and SDT disciplinary decisions

• David Lundy – Fined £8,000 for using the firm’s client account as a banking facility and other Accounts Rules breaches. This included ‘blending’ client and office money, and using the client account to pay business expenses and salaries.
• Andrew and Janet Stevenson – Husband and wife team suspended by 18 months and 6 months respectively, following a finding of ‘manifest incompetence’ by the SRA over the handling of dormant balances. The firm held old client balances dating back almost 40 years, with clients not being told that their money was being held.
• Morton Chater Solicitors – Sole practitioner fined £2,000 for Money Laundering Regulations breaches (lack of compliance risk assessment and policies, procedures and controls). The firm also falsely declared compliance in the January 2020 regulatory trap.
• Alan Brewer – Fined £2,000 for drink driving offence.
• Bevan-Evans & Capehorn Solicitors LLP – Firm fined £4,000 for lack of documented AML firm-wide risk assessment, compliant policies or a Money Laundering Compliance Officer (MLCO).
• Jack Mallinson – Non-lawyer banned from the profession following conviction for possession of indecent images.

COLP Insider is now on summer break. Wishing all our clients and readers a very enjoyable summer, and we will see you again in September!