In this article, our compliance team offer in-depth guidance on client account balances and your firm’s regulatory obligations.

Key Obligations

• Rule 2.5 of the SRA Accounts Rules states, “You ensure that client money is returned promptly to the client, or the third party for whom the money is held, as soon as there is no longer any proper reason to hold those funds.”
• Rule 3.3 of the SRA Accounts Rules states, “You must not use a client account to provide banking facilities to clients or third parties. Payments into, and transfers or withdrawals from a client account must be in respect of the delivery by you of regulated services.”

Holding clients’ money after the matter has closed is a breach of rule 2.5 and rule 3.3; there is no reason to still be holding this money as you are no longer delivering a regulated service.

Auditing accountants are being informed that if a firm does not have an appropriate process to clear client balances, then accountants’ reports will need to be qualified. A qualified accountant’s report must be filed with the SRA under SRA Accounts Rules 12.1(b). Firms should be aware qualified reports will then be reviewed by an SRA investigator.

Ways to Protect Against Client Account Balance Errors

• Firms should introduce a system to ensure matters are closed appropriately and client balances are cleared at closure.
• If you are unable to clear at closure, ensure fee earners are instructed to clear the monies quickly. Remember: the COFA should take responsibility for chasing, not the cashier.
• Depending on the number of balances, it is easier to manage if the COFA controls an auditing list of up to thirty cases. As one case is closed, another should be added, so the list always has thirty cases.
• Unclaimed monies should be sent to charity every quarter (or monthly).

 What To Do When Repaying the Owner

• The SRA requires you to make reasonable enquiries to trace and repay the owner. For small balances (sub £25.00) sending two emails, a call and a final email telling the client you will send unclaimed monies to charity will be enough.
• For balances over £500.00, the SRA will expect to see firms, as a minimum, to make use of the Department of Work and Pensions’ (DWP) letter forwarding service. The SRA has said it would also expect firms to use social media, newspapers or tracing services and, where appropriate, make a search of Companies House and/or the Probate Registry.
• What the SRA deems adequate steps to trace and repay the owner will be proportionate to the amount of money, so other steps expected could include placing adverts in appropriate publications, either local or national, depending on the circumstances.

Abortive Property

Firms should remain cautious when dealing with matters concerning monies held for a client on aborted property transactions. When you hold monies on account of fees, and a client’s transaction aborts but they do not find another property straight away, you are no longer providing a legal service. In this case, monies should be returned and not held while the client looks for a new property.

Please be aware that you will only have a few days to send the monies back to the client. The same applies when you hold sale proceeds, and the client is in the market to find a new property but has not done so. Still, you must return monies promptly.

Find the SRA guidance notice here:

Withdrawal of residual client balances

Regulatory Guidance from Industry Experts

Training: Our tailored training programs equip your staff with the knowledge and skills to fulfil their compliance responsibilities, including understanding Accounts Rules, AML regulations, Risk Assessment, and Suspicious Activity detection. For example, we can provide specialist in-depth training programs on:

• Accounts Rules Training for All Staff – Our tailored Accounts Rules Training provides a detailed run through of the accounts rules and how to avoid breaches or what to do if one occurs.

We also offer discounts when two courses are booked for the same day. For costs and further information on these courses, please get in touch via the details below. 

Contact RACO

For more information on the Regulation & Compliance Office and how we can assist in accelerating your risk management, compliance and regulation, call us on 

0203 985 8550 or email us at info@regulationandcomplianceoffice.co.uk