Law Firm Fined £18k for Allowing Its Client Account to Be Used as a Banking Facility

The Solicitors Regulation Authority (SRA) recently published its decision to fine Kennedys Law LLP £18,000 plus costs for failing to prevent its staff from allowing its client account to be used as a banking facility. The published case showed that the firm, while acting in a commercial property transaction between November 2016 and February 2018, failed to prevent its staff from making payments from the client account that did not relate to an underlying legal transaction, thereby allowing its client account to be used as a banking facility.

In doing so, the firm breached Principle 8 of the SRA Principles 2011, failed to achieve outcome 7.4 of the SRA Code of Conduct 2011 and breached rules 6.1 and 14.5 of the SRA Accounts Rules 2011.

Breach of SRA Accounts Rules 2011

The fine related to specific breaches under the SRA Accounts Rules 2011, including:

• Rule 6.1 – All the principals in a firm must ensure compliance with the rules by the principals themselves and by everyone employed in the firm. This duty also extends to the directors of a recognised body or licensed body which is a company, or to the members of a recognised body or licensed body which is an LLP. It also extends to the COFA of a firm (whether a manager or non-manager).
• Rule 14.5 (now Rule 3.3 in the 2019 standards) – Which states solicitors ‘must not provide banking facilities through a client account. Payments into, and transfers or withdrawals from, a client account must be in respect of instructions relating to an underlying transaction (and the funds arising therefrom) or to a service forming part of your normal regulated activities.’

The SRA also found that the firm breached

• Principle 8 of the SRA Principles 2011 – Which states that ‘you must run your business or carry out your role in the business effectively and in accordance with proper governance and sound financial and risk management principles.’
• Outcome 7.4 of the SRA Code of Conduct 2011 – Which states that solicitors must ‘maintain systems and controls for monitoring the financial stability of your firm and risks to money and assets entrusted to you by clients and others, and you take steps to address issues identified.’

Read full details about the decision here: https://www.sra.org.uk/consumers/solicitor-check/534581/

Meeting The Regulatory Requirements

The SRA Accounts Rules provide a framework designed to safeguard client funds and ensure that they are not put at risk, and are an essential part of the SRA Standards and Regulations.  

To ensure compliance with these rules, firms must establish appropriate systems and controls that align with the nature and volume of client transactions and the amount of client money held or received.

The industry regulator has previously warned firms about meeting their obligations under the Accounts rules, stating that reputable, well-run firms should easily comply. Any breach of these rules may result in disciplinary action, a consequence enforced in the case highlighted above.

Regulatory Guidance and Support from Industry Experts

At Regulation and Compliance Office (RACO), we work with firms and their COLPs and COFAs to assist them in managing risk, compliance, and regulation through a range of training and outsourced support solutions. Our goal is to ensure the firms we work with have and retain a compliant structure enabling the firm, its managers, and owners to focus on running their businesses and servicing their clients.

If you believe your firm may be at risk or wish to confirm your firm is achieving the required standard, RACO provides a range of solutions, including:

• Detailed Risk Management and Compliance Review – which provides firms with a structured, firm-wide gap analysis of your approach to risk, supervision and regulatory compliance. Designed for law firms and professional indemnity insurers, the review delivers a comprehensive evaluation of your current framework, identifies areas of exposure and sets out clear, pragmatic recommendations for improvement.
• Accounts manual drafting – a task that can seem difficult and time-consuming can be made easier with expertise and knowledge of how to approach, create and maintain this manual and to accurately reflect processes. It also serves as an important review, as writing the manual involves reviewing each financial process, which enables a firm to consider any required changes.
• Auditing and File Reviews – Procedural staff, systems, and files to ensure the procedures are up to the required standard and being implemented at case level with a report of the outcome.
• Training – Whether you seek training on a 1-2-1 or group basis, online or in person at your chosen location, RACO has a range of training courses and mentoring programs to suit any legal practice. We can also design bespoke courses tailored to your firm’s needs. We have provided training to firms of all sizes, and our clients range from sole practitioners and CLC practices to multi-service firms with overseas offices.

• Packaged Solutions – Implementation of robust solutions to ensure the firm achieves compliance and then maintains compliance through the provision of ongoing support and assistance: –
  • SRA Compliance Essentials – SRA Compliance Essentials gives you ongoing, specialist support to meet SRA Standards and Regulations and, where relevant, Anti-Money Laundering Regulations. It’s designed to give you peace of mind and free up time, while helping you demonstrate a robust compliance environment to the SRA and insurers.
  • Fully Outsourced Risk and Compliance Management – Dedicated, day-to-day risk and compliance management for law firms. The Risk & Compliance Management service provides your firm with an outsourced compliance team, delivering structured register administration, regulatory guidance and monthly reporting to support your COLP, COFA and MLRO. Designed to ensure ongoing oversight, documented monitoring and clear evidence of effective compliance management.

Speak to Our Compliance Specialists

For more information on the Regulation and Compliance Office and to discuss how we may be able to assist in accelerating your risk management or compliance and regulation, or to simply keep this up to date, please call us on 0203 985 8550, complete the online enquiry form below, or email us info@regulationandcomplianceoffice.co.uk.