We have restated our warning to law firms that they should not provide banking facilities through a client account to their clients or others, while providing further detail on how our rules apply in practice.
Our rules set out that law firms should only have money linked to an underlying legal service going through their client account. There must also be a proper connection with those receiving those funds and the legal services the firm has provided.
Risks to firms, clients and the wider public, include assisting money laundering, helping someone avoid their obligations in an insolvency situation, or improperly hiding assets in a commercial or matrimonial dispute. We have also warned firms about the risks of allowing firms’ client accounts to be used to add credibility to questionable investment schemes.
Firms cannot justify processing money through the client account due to having a retainer with a client. We caution against firms holding funds to enable them to pay a client’s routine outgoings, for instance when based abroad. With technological advances this is no longer justifiable.
We have published eleven case studies to help law firms understand the types of instances when paying money into the client account may or may not be acceptable.
Paul Philip, SRA Chief Executive, said: “Law firms are not regulated to operate their client accounts as a banking facility for clients. They should not trade on their reputation to provide banking facilities, which can result in significant risks for the firm, as well as their clients and the wider public.
“Our rules are not intended to prevent usual practice in traditional work undertaken by solicitors such as conveyancing, company acquisitions, the administration of estates or dealing with formal trusts. Money passing through the client account can be entirely legitimate where there is a clear legal service being provided, but we will continue to take action against those who cannot justify their actions, put their clients at risk and undermine public trust in the profession.”
In the last 12 months, we have prosecuted 20 solicitors and three firms at the SDT. Three solicitors were struck off and two more suspended, while the SDT also levied £763,000 of fines, including the highest fine ever of £500,000.