The SRA Code requires solicitors to keep client money and assets safe. Your firm should have systems in place to do this.
The accounting systems and records that you should use are described in the SRA Accounts Rules. Note that there will be major changes from November 2019 when the new Accounts Rules 2019 come into force.
Categories of money
Money held or received by your practice will be:
- client money held or received for a client
- office money belonging to you or your firm, or
- out of scope money that does not relate to activities regulated by the SRA
You must keep client money in a client account, separate from office money. You must use each client’s money only for that client’s matters.
A client account is a practice’s account used for holding client money. It must:
- be a bank or building society account
- be held at a branch or head office in England or Wales
- be in the name of the relevant law firm or sole practitioner
- include the word ‘client’ in the name of the account
A firm may have a separate designated account for a single client, or a general account that it uses for more than one client.
Protection for client accounts
The Financial Services Compensation Scheme protects deposits if a bank or building society fails. It covers:
- the first £85,000* deposited in a client account on behalf of a client
- ‘temporary high deposits’ over £85,000, for up to six months, if they result from life events such as a property sale, an insurance payout, a compensation payment, a divorce settlement or an inheritance
*The £85,000 limit applies to the individual client, so if the client holds other money in the same bank or building society, this will also be counted towards the total.
It’s unlikely that you’d be liable for client money that is lost through the collapse of a bank or building society, if you’ve followed the SRA Accounts Rules. However, if you’ve undertaken to pay money then you must meet this commitment.
See our practice note on protection for client accounts and our guidance on cybersecurity.
Payments for your fees
Some of the money that you receive from a client will be intended to cover your fees.
Payments on account of costs are generally client money and must be held in a client account.
A payment from a client for a fixed agreed fee is office money and should be paid into an office account.
If you require payment of your fees from the money you hold for a client, you must first send them a bill of costs or other written notification. The money for your costs then becomes office money, and you must transfer it from the client account into the office account within 14 days.
You must keep proper accounting records showing your dealings with:
- client money
- office money relating to any client matter or trust matter
The accounting systems and records that you should use are described in the SRA Accounts Rules.
Under the Accounts Rules you’re required to return client money promptly, which means you should return it as soon as there is no longer any proper reason to retain those funds. Your obligation to return funds that rightfully belong to a client extends to all balances, regardless of how small the sum is.
Unclaimed client funds
There may be occasions when you have difficulty in returning money, such as where:
- your firm acquired the balance through a merger and you do not have the original details
- you sent a cheque to the client but they have not cashed it
- your client has not given instructions about what to do with the money
- your client has changed their contact details without telling you
- your client has died and you do not know who the executors are
You should take reasonable steps to find the client and return the money. The steps you should take will depend on how much money is involved.
If all efforts to return the money are unsuccessful, you should donate the money to charity. You must follow the process in the SRA’s Accounts Rules, and if the amount is over £500 you’ll need to get approval from the SRA first.
If you intend to withdraw the money but not pay it to a charity, you must apply to the SRA for authorisation, whatever the amount involved. This could arise for example if you have an outstanding bill to be paid, but you’re unable to trace the client to deliver a bill of costs.
For more details, including steps you could take to find the client, see our practice note on residual client balances.
Find out about donating unclaimed funds to the Law Society Charity
If you discover a breach of the SRA Accounts Rules, it must be remedied promptly. This includes replacing any money that is improperly withheld or withdrawn from a client account.
The duty to remedy breaches rests on the person who caused the breach and on all the principals in the firm.
Missing client money must be replaced from the principals’ own resources, even if the money was misappropriated by an employee, and whether or not a claim is subsequently made on the firm’s insurance or the SRA Compensation Fund.
SRA Accounts Rules 2011
Protection for client accounts
Residual client balances
SRA Professional Ethics Helpline, for advice on the SRA Accounts Rules:
0370 606 2577
Law Society Practice Advice Service, for advice and support on all aspects of legal practice:
020 7320 5675