SRA Accounts Rules - Provision of a banking facility
The Solicitors Regulation Authority (SRA) issued a warning notice in relation to providing a banking facility through a client account back in December 2014. However, this has not altered the prominence of the problem, and the rules in relation to providing a banking facility remain unclear and a source of confusion for many.
Paying a personal injury claimant’s damages to a third party is prohibited but this is a common breach. As you may know, by providing a banking facility through a client account you would be in breach of Rule 14.5 of the SRA Account Rules 2011 (Account Rules) which states:
‘You 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’.
A guidance note to the rule also states:
‘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’.
We have been advising law firms on this issue for years. The proposal from the SRA is to radically revise the Solicitors Accounts Rules in 2017.
The recent case of Howard Samuel Norman v Solicitors Regulation Authority Case No: 11485-2016 highlights the issue and how easy it is to fall into providing banking facilities. The solicitor involved admitted all allegations made by the SRA, explaining that, while he accepted, with the benefit of hindsight, that his actions did amount to a breach of Rule 14.5, at the time he did not understand his actions to amount to such a breach. Holding money in a client account when the legal transaction is not proceeding is provision of banking services, making payments to third parties is as well.
The Tribunal commented:
‘The Tribunal noted and accepted that the Respondent had not realised that he was acting in breach of the rules against providing a banking facility… He had not intended to breach any rules but had acted for his own convenience and that of his clients, without proper consideration of whether he was thereby acting in accordance with his professional obligations’.
Despite the solicitor’s lack of intention, the Tribunal continued:
‘The Tribunal had regard to its duty, in considering sanction, to maintain the reputation of the professional as one whose members could be trusted to the ends of the earth’.
Mr Norman was fined £10,000 and ordered to pay £10,000 costs.
This case demonstrates the importance of complying with Rule 14.5, which can be easier said than done due to the unclear rules and the lack of guidance available.
There is no definition of banking facilities, so you need to assess the risk yourself and challenge what you do and what your team do to assess whether it amounts to banking.
If you are unsure about the rules or are subject to an SRA investigation, then seek specialist advice immediately.