Of all the occasions when you might expect a breach of rules leading to a fine from a regulator to be uncovered, an internal firm training session might not be one of them.
However, this is exactly what occurred at an Exeter-based law firm. The firm will now pay a fine of £16,200 to the Solicitors Regulation Authority after the firm held more than £1m for payments related to building projects being completed by its client. While this would seem reasonable for a client, the firm did not provide any significant element of legal services and therefore under SRA rules was not allowed to hold that money on behalf of the client. This happened despite an SRA warning note on the matter issued on 18 December 2014.
The fine was reduced by 40% from the original sum of £27,000 in recognition of the firm’s co-operation. The firm was also required to pay £1,350 in costs.
Other mitigating factors in this case included:
- There were no money laundering concerns
- The client did not suffer any financial loss
- The issue was reported to the regulator at the earliest opportunity
- The firm took immediate steps to ensure the practice did not continue
- The firm has made improvements to its systems and controls to ensure future compliance
This is could be a potential issue for many law firms who have been asked by a client to make payment through their client account, but where they are not acting in respect of and/or the transaction is not in connection with the delivery of regulated services. Regulated services include legal and other professional services that law firms provide that are regulated by the SRA.
In the first instance law firms should determine whether the client is able make the payment directly from their bank account. They should always ask why they are being asked to make a payment or why the client cannot make or receive the payment directly themselves.
If there is a valid and legitimate reason for doing so it becomes a question of if the law firm is able to help. It cannot transact the money through its own client account as we have seen. However, one option may be to use a third-party firm who operates a client account. This would allow funds to pass through a client account but not breach the SRA rule by the law firm doing it through theirs.
If using the option of a third party, you must conduct your own due diligence on that firm and how they run the account. You must also make sure the client is aware of where their money will go and what the relevant protections are. It must be pointed out that the client account of a third party may not have the same protections as an SRA regulated law firms, but if this would still be something a client is happy to proceed with it is worth looking into options out there.
To learn more about using a third party to hold your client’s money or if you are interested in utilising Northern Provident’s client account to do so, call us today on 02896 001616 or fill in our contact form.