Bank of Mum and Dad can't save you: failing to safeguard client money
Any solicitor who fails to protect client money, whether intentionally or not, is in breach of client trust.
The Solicitors Regulation Authority (SRA) alleged that while in practice as the sole owner at their firm, the solicitor made a series of improper withdrawals from the client account– and then misled the regulator about their firm’s financial position.
The SDT accepted evidence that the solicitor of 20 years’ standing had used the client account as a ‘piggy bank’ and failed to safeguard client money and assets.
The solicitor was also found to have failed to discharge stamp duty payments made by clients following the purchase of properties.
Investigators became involved after two claims were made to the compensation fund from clients. They found withdrawals of more than £20,000 had been made from the client account over the course of 18 months and ultimately a shortage of more than £8,500.
The tribunal heard that when the SRA began investigating the firm, the solicitor sent a screenshot showing a fake client account balance after making transfers – including money borrowed from their mother – to give the impression that the funds were available to discharge clients’ liabilities.
The solicitor claimed to have panicked under pressure and as a result provided false information. The tribunal had "no difficulty" in finding their conduct to be dishonest.
The SDT finding
The tribunal found that the solicitor breached the SRA Accounts Rules 2019 by misusing client money (Rule 5.1) over a period of more than two years and by failing to correct or replace any breach of money improperly withheld or withdrawn from a client account (Rule 6).
The SDT found that the solicitor acted dishonestly and failed to uphold Principles 2 and 6 of the SRA Principles 2019:
- Principle 2: “You must ... act with integrity”
- Principle 6: “You must ... behave in a way that maintains the trust the public places in you and in the provision of legal services”
On the allegation that the solicitor failed to discharge their clients’ liabilities to HMRC in relation to stamp duty payments made following the purchase of properties, the tribunal found that they further breached rule 6 of the Accounts Rules as well as Principle 7:
- Principle 7: “You must act in the best interests of each client.”
Given that the solicitor was significantly experienced and that they deliberately sought to mislead the SRA, the tribunal determined that their culpability was extremely high.
The SDT also found that the solicitor caused direct harm to clients, to the reputation of the profession and because they had repeatedly acted dishonesty over a protracted period of time, that the harm caused was intended and must have been foreseen.
The tribunal did not find any mitigating features to the misconduct and therefore assessed the seriousness of the misconduct at the highest level.
The solicitor was struck off and ordered to pay £16,500 costs.
Understanding your obligations
The SRA Code of Conduct for Solicitors, RELs and RFLs has clear expectations that you must safeguard money entrusted to you. These apply whether or not you work in a regulated firm.
The SRA Accounts Rules set out how the regulator expects firms to safeguard money held in a firm’s client account or other accounts that solicitors are signatory to. This includes trust money or money held for third parties. The rules apply to everyone in firms.
If you discover a breach of the rules, it must be corrected promptly.
Missing client money must be replaced from the principals’ own resources whether or not a claim is subsequently made on the firm’s insurance or the SRA Compensation Fund.
Mitigating your risks
As a member of the Law Society, you are part of a community of over 200,000 solicitors with access to a range of benefits to support you and help you thrive and prosper. This includes:
- practical resources and world-class learning to help you mitigate your risks, such as our practice note on protection for client accounts
- test your understanding of legal practice and the SRA Accounts Rules with our Risk and Compliance Accreditation training courses
You can also save money on products and services through exclusive offers and discounts from our partners.
Find out more
You can keep up to date with financial and accounting issues with Solicitors and the Accounts Rules (4th edition). It provides commentary on the requirements of the SRA Accounts Rules and suggests practical steps to ensure effective compliance.
For a comprehensive guide to practice and procedure in the tribunal, see the Solicitors Disciplinary Tribunal (2nd edition).
Join the Risk and Compliance Section to benefit from additional resources such as Legal Compliance magazine, as well as regular webinars and podcasts discussing ethical issues.