Version 17 of the Handbook was published on 12 August 2016. For more information, please click "History" above.
If you hold or receive client money, you must keep one or more client accounts (unless all the client money is always dealt with outside any client account in accordance with rule 8, rule 9, rule 15 or rule 16).
A "client account" is an account of a practice kept at a bank or building society for holding client money, in accordance with the requirements of this part of the rules.
The client account(s) of:
a sole practitioner must be in the name under which the sole practitioner is recognised by the SRA, whether that is the sole practitioner's own name or the firm name;
a partnership must be in the name under which the partnership is recognised by the SRA;
an incorporated practice must be in the company name, or the name of the LLP, as registered at Companies House;
in-house solicitors or RELs must be in the name of the current principal solicitor/REL or solicitors/RELs;
, where all the trustees of a trust are managers and/or employees of the same recognised body or licensed body, must be either in the name of the recognised body/licensed body or in the name of the trustee(s);
, where all the trustees of a trust are the sole practitioner and/or his or her employees, must be either in the name under which the sole practitioner is recognised by the SRA or in the name of the trustee(s);
and the name of the account must also include the word "client" in full (an abbreviation is not acceptable).
A client account must be:
a bank account at a branch (or a bank's head office) in England and Wales; or
a building society account at a branch (or a society's head office) in England and Wales.
There are two types of client account:
a "separate designated client account", which is an account for money relating to a single client, other person or trust, and which includes in its title, in addition to the requirements of rule 13.3 above, a reference to the identity of the client, other person or trust; and
a "general client account", which is any other client account.
The clients of a licensed body must be informed at the outset of the retainer, or during the course of the retainer as appropriate, if the licensed body is (or becomes) owned by a bank or building society and its client account is held at that bank or building society (or another bank or building society in the same group).
Money held in a client account must be immediately available, even at the sacrifice of interest, unless the client otherwise instructs, or the circumstances clearly indicate otherwise.
In the case of in-house practice, any client account should include the names of all solicitors or registered European lawyers held out on the notepaper as principals. The names of other employees who are solicitors or registered European lawyers may also be included if so desired.
Compliance with rule 13.1 to 13.4 ensures that clients, as well as the bank or building society, have the protection afforded by section 85 of the Solicitors Act 1974 or article 4 of the Legal Services Act 2007 (Designation as a Licensing Authority) (No. 2) Order 2011 as appropriate.
must without delay be paid into a client account, and must be held in a client account, except when the rules provide to the contrary (see rules 8, 9, 15, 16, 17 and 19).
Only client money may be paid into or held in a client account, except:
an amount of the firm's own money required to open or maintain the account;
an advance from the firm to fund a payment on behalf of a client or trust in excess of funds held for that client or trust; the sum becomes client money on payment into the account (for interest on client money, see rule 22.2(c));
money to replace any sum which for any reason has been drawn from the account in breach of rule 20; the replacement money becomes client money on payment into the account;
which is paid into a client account to enable payment from the client account of all money owed to the client; and
a cheque in respect of damages and costs, made payable to the client, which is paid into the client account pursuant to the Society's Conditional Fee Agreement; the sum becomes client money on payment into the account (but see rule 17.1(e) for the transfer of the costs element from client account);
and except when the rules provide to the contrary (see guidance note (ii) below).
must be returned to the client (or other person on whose behalf the money is held) promptly, as soon as there is no longer any proper reason to retain those funds. Payments received after you have already accounted to the client, for example by way of a refund, must be paid to the client promptly.
must promptly inform a client (or other person on whose behalf the money is held) in writing of the amount of any client money retained at the end of a matter (or the substantial conclusion of a matter), and the reason for that retention. You must inform the client (or other person) in writing at least once every twelve months thereafter of the amount of client money still held and the reason for the retention, for as long as you continue to hold that money.
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.
Exceptions to rule 14.1 (client money must be paid into a client account) can be found in:
rule 8 - liquidators, trustees in bankruptcy, Court of Protection deputies and trustees of occupational pension schemes;
rule 9 - joint accounts;
rule 15 - client's instructions;
rule 16 - cash paid straight to client, beneficiary or third party;
cheque endorsed to client, beneficiary or third party;
money withheld from client account on the SRA's authority;
money withheld from client account in accordance with a trustee's powers;
rule 17.1(b) - receipt and transfer of costs;
rule 19.1 - payments by the Legal Aid Agency.
Rule 14.2(a) to (e) provides for exceptions to the principle that only client money may be paid into a client account. Additional exceptions can be found in:
rule 17.1(c) - receipt and transfer of costs;
rule 18.2(b) - receipt of mixed payments;
rule 19.2(c)(ii) - transfer to client account of a sum for unpaid professional disbursements, where regular payments are received from the Legal Aid Agency.
Only a nominal sum will be required to open or maintain an account. In practice, banks will usually open (and, if instructed, keep open) accounts with nil balances.
If client money is invested in the purchase of assets other than money - such as stocks or shares - it ceases to be client money, because it is no longer money held by the firm. If the investment is subsequently sold, the money received is, again, client money. The records kept under rule 29 will need to include entries to show the purchase or sale of investments.
Rule 14.5 reflects decisions of the Solicitors Disciplinary Tribunal that it is not a proper part of a solicitor's everyday business or practice to operate a banking facility for third parties, whether they are clients of the firm or not. It should be noted that any exemption under the Financial Services and Markets Act 2000 is likely to be lost if a deposit is taken in circumstances which do not form part of your practice. It should also be borne in mind that there are criminal sanctions against assisting money launderers.
As with rule 7 (Duty to remedy breaches), "promptly" in rule 14.3 and 14.4 is not defined but should be given its natural meaning in the particular circumstances. Accounting to a client for any surplus funds will often fall naturally at the end of a matter. Other retainers may be more protracted and, even when the principal work has been completed, funds may still be needed, for example, to cover outstanding work in a conveyancing transaction or to meet a tax liability. (See also paragraphs 4.8 and 4.9 of the Guidelines for accounting procedures and systems at Appendix 3.)
There may be some instances when, during the course of a retainer, the specific purpose for which particular funds were paid no longer exists, for example, the need to instruct counsel or a medical expert. Rule 14.3 is concerned with returning funds to clients at the end of a matter (or the substantial conclusion of a matter) and is not intended to apply to ongoing retainers. However, in order to act in the best interests of your client, you may need to take instructions in such circumstances to ascertain, for instance, whether the money should be returned to the client or retained to cover the general funding or other aspects of the case.
See rule 20.1(j)-(k) for withdrawals from a client account when the rightful owner of funds cannot be traced. The obligation to report regularly under rule 14.4 ceases to apply if you are no longer able to trace the client, at which point rule 20.1(j) or (k) would apply.
held by you outside a client account by, for example, retaining it in the firm's safe in the form of cash, or placing it in an account in the firm's name which is not a client account, such as an account outside England and Wales; or
paid into an account at a bank, building society or other financial institution opened in the name of the client or of a person designated by the client;
but only if the client instructs you to that effect for the client's own convenience, and only if the instructions are given in writing, or are given by other means and confirmed by you to the client in writing.
It is improper to seek blanket agreements, through standard terms of business or otherwise, to hold client money outside a client account.
If a client instructs you to hold part only of a payment in accordance with rule 15.1(a) or (b), the entire payment must first be placed in a client account, before transferring the relevant part out and dealing with it in accordance with the client's instructions.
A payment on account of costs received from a person who is funding all or part of your fees may be withheld from a client account on the instructions of that person given in accordance with rule 15.1.
Money withheld from a client account under rule 15.1(a) remains client money, and all the record-keeping provisions of rule 29 will apply.
Once money has been paid into an account set up under rule 15.1(b), it ceases to be client money. Until that time, the money is client money and, under rule 29, a record is required of your receipt of the money, and its payment into the account in the name of the client or designated person. If you can operate the account, rule 10 (operating a client's own account) and rule 30 (accounting records for clients' own accounts) will apply. In the absence of instructions to the contrary, rule 14.1 requires any money withdrawn to be paid into a client account.
Rule 29.17(d) requires clients' instructions under rule 15.1 to be kept for at least six years.
The following categories of client money may be withheld from a client account:
cash received and without delay paid in cash in the ordinary course of business to the client or, on the client's behalf, to a third party, or paid in cash in the execution of a trust to a beneficiary or third party;
a cheque or draft received and endorsed over in the ordinary course of business to the client or, on the client's behalf, to a third party, or without delay endorsed over in the execution of a trust to a beneficiary or third party;
money withheld from a client account on instructions under rule 15;
money which, in accordance with a trustee's powers, is paid into or retained in an account of the trustee which is not a client account (for example, an account outside England and Wales), or properly retained in cash in the performance of the trustee's duties;
unpaid professional disbursements included in a payment of costs dealt with under rule 17.1(b);
in respect of payments from the Legal Aid Agency:
advance payments from the Legal Aid Agency withheld from client account (see rule 19.1(a)); and
unpaid professional disbursements included in a payment of costs from the Legal Aid Agency (see rule 19.1(b)); and
money withheld from a client account on the written authorisation of the SRA. The SRA may impose a condition that the money is paid to a charity which gives an indemnity against any legitimate claim subsequently made for the sum received.
If money is withheld from a client account under rule 16.1(a) or (b), rule 29 requires records to be kept of the receipt of the money and the payment out.
If money is withheld from a client account under rule 16.1(d), rule 29 requires a record to be kept of the receipt of the money, and requires the inclusion of the money in the monthly reconciliations. (Money held by a trustee jointly with another party is subject only to the limited requirements of rule 9.)
It makes no difference, for the purpose of the rules, whether an endorsement is effected by signature in the normal way or by some other arrangement with the bank.
The circumstances in which authorisation would be given under rule 16.1(g) must be extremely rare. Applications for authorisation should be made to the Professional Ethics Guidance Team.
When you receive money paid in full or part settlement of your bill (or other notification of costs) you must follow one of the following five options:
determine the composition of the payment without delay, and deal with the money accordingly:
if the sum comprises office money and/or out-of-scope money only, it must be placed in an office account;
if the sum comprises only client money, the entire sum must be placed in a client account;
if the sum includes both office money and client money, or client money and out-of-scope money, or client money, out-of-scope money and office money, you must follow rule 18 (receipt of mixed payments); or
ascertain that the payment comprises only
in the form of
incurred but not yet paid, and deal with the payment as follows:
place the entire sum in an office account at a bank or building society branch (or head office) in England and Wales; and
by the end of the second working day following receipt, either pay any unpaid professional disbursement, or transfer a sum for its settlement to a client account; or
pay the entire sum into a
(regardless of its composition), and transfer any
out of the
within 14 days of receipt; or
on receipt of
from the Legal Aid Agency, follow the option in rule 19.1(b); or
in relation to a cheque paid into a
under rule 14.2(e), transfer the
element out of the
within 14 days of receipt.
If you properly require payment of your fees from money held for a client or trust in a client account, you must first give or send a bill of costs, or other written notification of the costs incurred, to the client or the paying party.
Once you have complied with rule 17.2 above, the money earmarked for costs becomes office money and must be transferred out of the client account within 14 days.
A payment on account of costs generally in respect of those activities for which the practice is regulated by the SRA is client money, and must be held in a client account until you have complied with rule 17.2 above. (For an exception in the case of legal aid payments, see rule 19.1(a). See also rule 18 on dealing with mixed payments of client money and/or out-of-scope money when part of a payment on account of costs relates to activities not regulated by the SRA.)
A payment for an agreed fee must be paid into an office account. An "agreed fee" is one that is fixed - not a fee that can be varied upwards, nor a fee that is dependent on the transaction being completed. An agreed fee must be evidenced in writing.
will not be in breach of rule 17 as a result of a misdirected electronic payment or other direct transfer from a client or paying third party, provided:
appropriate systems are in place to ensure compliance;
appropriate instructions were given to the client or paying third party;
the client's or paying third party's mistake is remedied promptly upon discovery; and
appropriate steps are taken to avoid future errors by the client or paying third party.
transferred out of a client account in accordance with rule 17.2 and 17.3 must be specific sums relating to the bill or other written notification of costs, and covered by the amount held for the particular client or trust. Round sum withdrawals on account of costs are a breach of the rules.
In the case of a trust of which the only trustee(s) are within the firm, the paying party will be the trustee(s) themselves. You must keep the original bill or notification of costs on the file, in addition to complying with rule 29.15 (central record or file of copy bills, etc.).
Undrawn costs must not remain in a client account as a "cushion" against any future errors which could result in a shortage on that account, and cannot be regarded as available to set off against any general shortage on client account.
This note lists types of disbursement and how they are categorised:
Money received for paid disbursements is office money.
Money received for unpaid professional disbursements is client money.
Money received for other unpaid disbursements for which you have incurred a liability to the payee (for example, travel agents' charges, taxi fares, courier charges or Land Registry search fees, payable on credit) is office money.
Money received for disbursements anticipated but not yet incurred is a payment on account, and is therefore client money.
The option in rule 17.1(a) allows you to place all payments in the correct account in the first instance. The option in rule 17.1(b) allows the prompt banking into an office account of an invoice payment when the only uncertainty is whether or not the payment includes some client money in the form of unpaid professional disbursements. The option in rule 17.1(c) allows the prompt banking into a client account of any invoice payment in advance of determining whether the payment is a mixture of office and client money (of whatever description), or client money and out-of-scope money, or client money, out-of-scope money and office money, or is only office money and/or out-of-scope money.
If you are not in a position to comply with the requirements of rule 17.1(b), you cannot take advantage of that option.
The option in rule 17.1(b) cannot be used if the money received includes a payment on account - for example, a payment for a professional disbursement anticipated but not yet incurred.
In order to be able to use the option in rule 17.1(b) for electronic payments or other direct transfers from clients, you may choose to establish a system whereby clients are given an office account number for payment of costs. The system must be capable of ensuring that, when invoices are sent to the client, no request is made for any client money, with the sole exception of money for professional disbursements already incurred but not yet paid.
Rule 17.1(c) allows clients to be given a single account number for making direct payments by electronic or other means - under this option, it has to be a client account.
"Properly" in rule 17.2 implies that the work has actually been done, whether at the end of the matter or at an interim stage, and that you are entitled to appropriate the money for costs. For example, the costs set out in a completion statement in a conveyancing transaction will become due on completion and should be transferred out of the client account within 14 days of completion in accordance with rule 17.3. The requirement to transfer costs out of the client account within a set time is intended to prevent costs being left on client account to conceal a shortage.
Money is "earmarked" for costs under rule 17.2 and 17.3 when you decide to use funds already held in client account to settle your bill. If you wish to obtain the client's prior approval, you will need to agree the amount to be taken with your client before issuing the bill to avoid the possibility of failing to meet the 14 day time limit for making the transfer out of client account. If you wish to retain the funds, for example, as money on account of costs on another matter, you will need to ask the client to send the full amount in settlement of the bill. If, when submitting a bill, you fail to indicate whether you intend to take your costs from client account, or expect the client to make a payment, you will be regarded as having "earmarked" your costs.
An amendment to section 69 of the Solicitors Act 1974 by the Legal Services Act 2007 permits a solicitor or recognised body to sue on a bill which has been signed electronically and which the client has agreed can be delivered electronically.
The rules do not require a bill of costs for an agreed fee, although your VAT position may mean that in practice a bill is needed. If there is no bill, the written evidence of the agreement must be filed as a written notification of costs under rule 29.15(b).
The bill of an MDP may be in respect of costs for work of the SRA-regulated part of the practice, and also for work that falls outside the scope of SRA regulation. Money received in respect of the non-SRA regulated work, including money for disbursements, is out-of-scope money and must be dealt with in accordance with rule 17.
See Chapter 1, indicative behaviour 1.21 of the SRA Code of Conduct in relation to ensuring that disbursements included in a bill reflect the actual amount spent or to be spent.
A "mixed payment" is one which includes client money as well as office money and/or out-of-scope money.
A mixed payment must either:
be split between a client account and office account as appropriate; or
be placed without delay in a client account.
If the entire payment is placed in a client account, all office money and/or out-of-scope money must be transferred out of the client account within 14 days of receipt.
See rule 17.1(b) and (c) for additional ways of dealing with (among other things) mixed payments received in response to a bill or other notification of costs.
See rule 19.1(b) for (among other things) mixed payments received from the Legal Aid Agency.
Some out-of-scope money may be subject to the rules of other regulators which may require an earlier withdrawal from the client account operated under these rules.
Two special dispensations apply to payments (other than regular payments) from the Legal Aid Agency:
An advance payment, which may include client money, may be placed in an office account, provided the Legal Aid Agency instructs in writing that this may be done.
A payment for costs (interim and/or final) may be paid into an office account at a bank or building society branch (or head office) in England and Wales, regardless of whether it consists wholly of office money, or is mixed with client money in the form of:
advance payments for fees or disbursements; or
money for unpaid professional disbursements;
provided all money for payment of disbursements is transferred to a client account (or the disbursements paid) within 14 days of receipt.
The following provisions apply to regular payments from the Legal Aid Agency:
"Regular payments" (which are office money) are:
standard monthly payments paid by the Legal Aid Agency under the civil legal aid contracting arrangements;
standard monthly payments paid by the Legal Aid Agency under the criminal legal aid contracting arrangements; and
any other payments for work done or to be done received from the Legal Aid Agency under an arrangement for payments on a regular basis.
must be paid into an office account at a bank or building society branch (or head office) in England and Wales.
must within 28 days of submitting a report to the Legal Aid Agency, notifying completion of a matter, either:
pay any unpaid professional disbursement(s), or
transfer to a client account a sum equivalent to the amount of any unpaid professional disbursement(s),
relating to that matter.
In cases where the Legal Aid Agency permits you to submit reports at various stages during a matter rather than only at the end of a matter, the requirement in rule 19.2(c) above applies to any unpaid professional disbursement(s) included in each report so submitted.
If the Legal Aid Agency has paid any costs to you or a previously nominated firm in a matter (advice and assistance or legal help costs, advance payments or interim costs), or has paid professional disbursements direct, and costs are subsequently settled by a third party:
The entire third party payment must be paid into a client account.
A sum representing the payments made by the Legal Aid Agency must be retained in the client account.
Any balance belonging to you must be transferred to an office account within 14 days of your sending a report to the Legal Aid Agency containing details of the third party payment.
The sum retained in the client account as representing payments made by the Legal Aid Agency must be:
either recorded in the individual client's ledger account, and identified as the Legal Aid Agency's money;
or recorded in a ledger account in the Legal Aid Agency's name, and identified by reference to the client or matter;
and kept in the client account until notification from the Legal Aid Agency that it has recouped an equivalent sum from subsequent payments due to you. The retained sum must be transferred to an office account within 14 days of notification.
Any part of a third party payment relating to unpaid professional disbursements or outstanding costs of the client's previous firm is client money, and must be kept in a client account until you pay the professional disbursement or outstanding costs.
This rule deals with matters which specifically affect legal aid practitioners. It should not be read in isolation from the remainder of the rules which apply to everyone, including legal aid practitioners.
In cases carried out under public funding certificates, firms can apply for advance payments ("Payments on Account" under the Standard Civil Contract). The Legal Aid Agency has agreed that these payments may be placed in office account.
Rule 19.1(b) deals with the specific problems of legal aid practitioners by allowing a mixed or indeterminate payment of costs (or even a payment consisting entirely of unpaid professional disbursements) to be paid into an office account, which for the purpose of rule 19.1(b) must be an account at a bank or building society. However, it is always open to you to comply with rule 17.1(a) to (c), which are the options for everyone for the receipt of costs. For regular payments, see guidance notes (v)-(vii) below.
Firms are required by the Legal Aid Agency to report promptly to the Legal Aid Agency on receipt of costs from a third party. It is advisable to keep a copy of the report on the file as proof of compliance with the Legal Aid Agency's requirements, as well as to demonstrate compliance with the rule.
Rule 19.2(c) permits a firm, which is required to transfer an amount to cover unpaid professional disbursements into a client account, to make the transfer from its own resources if the regular payments are insufficient.
The 28 day time limit for paying, or transferring an amount to a client account for, unpaid professional disbursements is for the purposes of these rules only. An earlier deadline may be imposed by contract with the Legal Aid Agency or with counsel, agents or experts. On the other hand, you may have agreed to pay later than 28 days from the submission of the report notifying completion of a matter, in which case rule 19.2(c) will require a transfer of the appropriate amount to a client account (but not payment) within 28 days.
For the appropriate accounting records for regular payments, see rule 29.7.
may only be withdrawn from a client account when it is:
properly required for a payment to or on behalf of the client (or other person on whose behalf the money is being held);
properly required for a payment in the execution of a particular trust, including the purchase of an investment (other than money) in accordance with the trustee's powers;
properly required for payment of a disbursement on behalf of the client or trust;
properly required in full or partial reimbursement of money spent by you on behalf of the client or trust;
transferred to another client account;
withdrawn on the client's instructions, provided the instructions are for the client's convenience and are given in writing, or are given by other means and confirmed by you to the client in writing;
transferred to an account other than a client account (such as an account outside England and Wales), or retained in cash, by a trustee in the proper performance of his or her duties;
a refund to you of an advance no longer required to fund a payment on behalf of a client or trust (see rule 14.2(b));
money which has been paid into the account in breach of the rules (for example, money paid into the wrong separate designated client account) - see rule 20.5 below;
money not covered by (a) to (i) above, where you comply with the conditions set out in rule 20.2; or
money not covered by (a) to (i) above, withdrawn from the account on the written authorisation of the SRA. The SRA may impose a condition that you pay the money to a charity which gives an indemnity against any legitimate claim subsequently made for the sum received.
A withdrawal of client money under rule 20.1(j) above may be made only where the amount held does not exceed £500 in relation to any one individual client or trust matter and you:
establish the identity of the owner of the money, or make reasonable attempts to do so;
make adequate attempts to ascertain the proper destination of the money, and to return it to the rightful owner, unless the reasonable costs of doing so are likely to be excessive in relation to the amount held;
pay the funds to a charity;
record the steps taken in accordance with rule 20.2(a)-(c) above and retain those records, together with all relevant documentation (including receipts from the charity), in accordance with rule 29.16 and 29.17(a); and
keep a central register in accordance with rule 29.22.
may only be withdrawn from a client account when it is:
money properly paid into the account to open or maintain it under rule 14.2(a);
properly required for payment of your costs under rule 17.2 and 17.3;
the whole or part of a payment into a client account under rule 17.1(c);
part of a mixed payment placed in a client account under rule 18.2(b); or
money which has been paid into a client account in breach of the rules (for example, interest wrongly credited to a general client account) - see rule 20.5 below.
must be withdrawn from a client account in accordance with rules 17.1(a), 17.1(c) and 18 as appropriate.
Money which has been paid into a client account in breach of the rules must be withdrawn from the client account promptly upon discovery.
Money withdrawn in relation to a particular client or trust from a general client account must not exceed the money held on behalf of that client or trust in all your general client accounts (except as provided in rule 20.7 below).
may make a payment in respect of a particular client or trust out of a general client account, even if no money (or insufficient money) is held for that client or trust in your general client account(s), provided:
sufficient money is held for that client or trust in a separate designated client account; and
the appropriate transfer from the separate designated client account to a general client account is made immediately.
Money held for a client or trust in a separate designated client account must not be used for payments for another client or trust.
A client account must not be overdrawn, except in the following circumstances:
A separate designated client account operated in your capacity as trustee can be overdrawn if you make payments on behalf of the trust (for example, inheritance tax) before realising sufficient assets to cover the payments.
If a sole practitioner dies and his or her client accounts are frozen, overdrawn client accounts can be operated in accordance with the rules to the extent of the money held in the frozen accounts.
Withdrawals in favour of firm, and for payment of disbursements
Disbursements to be paid direct from a client account, or already paid out of your own money, can be withdrawn under rule 20.1(c) or (d) in advance of preparing a bill of costs. Money to be withdrawn from a client account for the payment of costs (fees and disbursements) under rule 17.2 and 17.3 becomes office money and is dealt with under rule 20.3(b).
Money is "spent" under rule 20.1(d) at the time when you despatch a cheque, unless the cheque is to be held to your order. Money is also regarded as "spent" by the use of a credit account, so that, for example, search fees, taxi fares and courier charges incurred in this way may be transferred to your office account.
See rule 21.4 for the way in which a withdrawal from a client account in your favour must be effected.
Cheques payable to banks, building societies, etc.
In order to protect client money against misappropriation when cheques are made payable to banks, building societies or other large institutions, it is strongly recommended that you add the name and number of the account after the payee's name.
Drawing against uncleared cheques
You should use discretion in drawing against a cheque received from or on behalf of a client before it has been cleared. If the cheque is not met, other clients' money will have been used to make the payment in breach of the rules (see rule 7 (duty to remedy breaches)). You may be able to avoid a breach of the rules by instructing the bank or building society to charge all unpaid credits to your office or personal account.
Non-receipt of electronic payments
If you withdraw money from a general client account on the strength of information that an electronic payment is on its way, but the electronic payment does not arrive, you will have used other clients' money in breach of the rules. See also rule 7 (duty to remedy breaches).
Withdrawals on instructions
One of the reasons why a client might authorise a withdrawal under rule 20.1(f) might be to have the money transferred to a type of account other than a client account. If so, the requirements of rule 15 must be complied with.
Withdrawals where the rightful owner cannot be traced, on the SRA's authorisation and without SRA authorisation
Applications for authorisation under rule 20.1(k) should be made to the Professional Ethics Guidance Team, who can advise on the criteria which must normally be met for authorisation to be given. You may under rule 20.1(j) pay to a charity sums of £500 or less per client or trust matter without the SRA's authorisation, provided the safeguards set out in rule 20.2 are followed.
You will need to apply to the SRA, whatever the amount involved, if the money to be withdrawn is not to be paid to a charity. This situation might arise, for example, if you have been unable to deliver a bill of costs because the client has become untraceable and so cannot make a transfer from client account to office account in accordance with rule 17.2-17.3.
After a practice has been wound up, surplus balances are sometimes discovered in an old client account. This money remains subject to rule 20 and rule 21. An application can be made to the SRA under rule 20.1(k).
A withdrawal from a client account may be made only after a specific authority in respect of that withdrawal has been signed by an appropriate person or persons in accordance with the firm's procedures for signing on client account. An authority for withdrawals from client account may be signed electronically, subject to appropriate safeguards and controls.
must put in place appropriate systems and procedures governing withdrawals from client account, including who should be permitted by the firm to sign on client account. A non-manager owner or a non-employee owner of a licensed body is not an appropriate person to be a signatory on client account and must not be permitted by the firm to act in this way.
There is no need to comply with rule 21.1 above when transferring money from one general client account to another general client account at the same bank or building society.
A withdrawal from a client account in your favour must be either by way of a cheque, or by way of a transfer to the office account or to your personal account. The withdrawal must not be made in cash.
A firm should select suitable people to authorise withdrawals from the client account. Firms will wish to consider whether any employee should be able to sign on client account, and whether signing rights should be given to all managers of the practice or limited to those managers directly involved in providing legal services. Someone who has no day-to-day involvement in the business of the practice is unlikely to be regarded as a suitable signatory because of the lack of proximity to client matters. An appropriate understanding of the requirements of the rules is essential - see paragraph 4.2 of the Guidelines for accounting procedures and systems at Appendix 3.
Instructions to the bank or building society to withdraw money from a client account (rule 21.1) may be given over the telephone, provided a specific authority has been signed in accordance with this rule before the instructions are given. It is of paramount importance that there are appropriate in-built safeguards, such as passwords, to give the greatest protection possible for client money. Suitable safeguards will also be needed for practices which operate a CHAPS terminal or other form of electronic instruction for payment.
In the case of a withdrawal by cheque, the specific authority (rule 21.1) is usually a signature on the cheque itself. Signing a blank cheque is not a specific authority.
A withdrawal from a client account by way of a private loan from one client to another can only be made if the provisions of rule 27.2 are complied with.
If, in your capacity as trustee, you instruct an outside administrator to run, or continue to run, on a day-to-day basis, the business or property portfolio of an estate or trust, you will not need to comply with rule 21.1, provided all cheques are retained in accordance with rule 29.18. (See also rule 29, guidance note (ii)(d).)
You may set up a "direct debit" system of payment for Land Registry application fees on either the office account or a client account. If a direct debit payment is to be taken from a client account for the payment of Land Registry application fees, a signature, which complies with the firm's systems and procedures set up under rule 21, on the application for registration will constitute the specific authority required by rule 21.1. As with any other payment method, care must be taken to ensure that sufficient uncommitted funds are held in the client account for the particular client before signing the authority. You should also bear in mind that should the Land Registry take an incorrect amount in error from a firm's client account (for example, a duplicate payment), the firm will be in breach of the rules if other clients' money has been used as a result.
If you fail to specify the correct Land Registry fee on the application for registration (either by specifying a lesser amount than that actually due, or failing to specify any fee at all), you will be in breach of rule 21.1 if the Land Registry takes a sum from your client account greater than that specified on the application, without a specific authority for the revised sum being in place as required by rule 21. In order that you can comply with the rules, the Land Registry will need to contact you before taking the revised amount, so that the necessary authority may be signed prior to the revised amount being taken.
Where the Land Registry contacts you by telephone, and you wish to authorise an immediate payment by direct debit over the telephone, you will first need to check that there is sufficient money held in client account for the client and, if there is, that it is not committed to some other purpose.
The specific authority required by rule 21.1 can be signed after the telephone call has ended but must be signed before the additional payment (or correct full payment) is taken by the Land Registry. It is advisable to sign the authority promptly and, in any event, on the same day as the telephone instruction is given to the Land Registry to take the additional (or correct full) amount. If you decide to fund any extra amount from the office account, the transfer of office money to the client account would need to be made, preferably on the same day but, in any event, before the direct debit is taken. Your internal procedures would need to make it clear how to deal with such situations; for example, who should be consulted before a direct debit for an amount other than that specified on the application can be authorised, and the mechanism for ensuring the new authority is signed by a person permitted by the firm to sign on client account.
You may decide to set up a direct debit system of payment on the office account because, for example, you do not wish to allow the Land Registry to have access to the firm's client account. Provided you are in funds, a transfer from the client account to the office account may be made under rule 20.1(d) to reimburse you as soon as the direct debit has been taken.
Variable "direct debit" payments to the Land Registry, as described in guidance notes (vi)-(x) above, are not direct debits in the usual sense as each payment is authorised and confirmed individually. A traditional direct debit or standing order should not be set up on a client account because of the need for a specific authority for each withdrawal.