What Happens if the Client Account is used as a Banking Facility?
The SRA Principles and SRA code of conduct comprise the fundamental tenets of ethical behaviour that Solicitors are expected to uphold. A solicitor must act in accordance with both the SRA principles and the code of conduct.
Failure to uphold these principles or code of conduct will result in an SRA investigation and possible referral to the Solicitors Disciplinary Tribunal.
Rule 3.3 of the SRA Accounts Rules provides that:
'You must not use a client account to provide banking facilities to clients or third parties. Payments into, and transfers or withdrawals from a client account must be in respect of the delivery by you of regulated services'.
The SRA have provided examples of what they consider to be a breach of Rule 3.3, these examples include:
- Holding unconnected money in client account
- Unconnected payments from client account
- Firm paying client’s debts out of client account
In Fuglers LLP v SRA (2014) the matter arose out of the insolvency of Portsmouth City Football club. During the club’s financial troubles, its banking arrangements had been withdrawn. The SRA alleged that the Respondent law firm had allowed the client account to be used as the club’s banking facility. The matter was referred to the Solicitors Disciplinary Tribunal who imposed a large fine of £75,000 upon the firm itself and smaller fines on two partners after finding them guilty of allowing the firm’s client account to be used as a banking facility for their client, a football club at risk of insolvency. The firm appealed this decision, but their appeal was dismissed by the High Court.
In a more recent case, in 2019 Solicitor William Osmond was arrested by the Serious Fraud Office (“SFO”) and later sentenced to nine months imprisonment (suspended for eighteen months) for tipping off a client about an SFO investigation. This was of course brought to the attention of the SRA. Ultimately it was revealed that Mr Osmond’s firm received and paid out £388 million in total, on behalf of one client, an overseas businessman. The firm charged him £1.2million in fees. The SRA investigated the firm itself and Mr Osmond as an individual, discovering that over a three year period the firm received £32 million from its client, and paid out £28 million - without any underlying legal transactions to justify these payments.
The matter was referred to the SDT who were considering striking off Mr Osmond. However, the SRA entered into a Regulatory Settlement Agreement of an indefinite restriction order in addition to a 12-month suspension. The restrictions prevent Mr Osmond from practising as a sole practitioner or sole manager or sole owner of an authorised or recognised body; or as a freelance solicitor; or as a solicitor in an unregulated organisation; being a head of legal practice/compliance officer for legal practice or a head of finance and administration/compliance officer for finance and administration; holding client money or being a signatory on any client account.
The SRA will investigate any suspicion of a firm’s client account being used incorrectly. If the allegation is found proven against a solicitor, sanctions can include fines, suspensions and in severe cases strike off. If the allegation is found proven against a firm, sanctions can include large fines and possible intervention.
If you are being investigated by the SRA for improper use of the firm’s client account or have been referred to the Solicitors Disciplinary Tribunal, feel free to get in touch with our Regulatory department to discuss how we can assist. The earlier we start work, the better.