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Solicitor's Accounts Rules 1998 - Key Points

We have reviewed the new rules and extracted the following key points that we believe you should review to ensure that your systems are capable of complying once these new rules become mandatory on 1st May 2000

• Banking "without delay" means, in normal circumstances, either on the day or receipt or on the next working day. (Rule 2.2(z)) Obviously "normal circumstances" is open to interpretation. Volume of transactions would not ordinarily be considered evidence of abnormal circumstances since the solicitor should plan his systems so as to be able to cope with peak transaction level, nor would ordinary levels of staff illness or holidays which should be planned for and covered by reallocation of other staff.
• Rule 6 makes it clear that it is the principals of the practice that must ensure compliance with the Rules by both themselves and everyone else working in the practice. In practice compliance functions with regard to accounting will be delegated to the accounts department or accounts clerk but the accounting guidelines require that principals must supervise and where necessary intervene.
• Rules 9,10 and 11 clarify the record keeping requirements in respect of moneys that may be held otherwise than in clients account. Essentially these extend the requirements to keep central records into virtually every situation in which the solicitor may open or use a bank (or building society) account or deal with client money. In addition the reporting accountant must now report on compliance with these rules
• Note (xii) to Rule 13 deals with situations where a principal or employee of the practice may be the client. If a principal (or principals) are the sole client(s) then the moneys are office money otherwise it is client money. In this instance care must be exercised when acting for a principal in relation to house purchase, up until completion any mortgage moneys are CLIENT moneys regardless of whether the principal is purchasing solely or otherwise, this is because they belong to the building society not the principal.
• Rule 19.1(b) provides an alternative method of dealing with mixed funds. Where the client element consists solely of funds in relation to unpaid professional disbursements then it may be paid into office account provided that by the end of the second working day following receipt the unpaid disbursements are paid or moneys transferred to client account. It is important to note this relates only to professional disbursements, thus if a payment includes funds for payment of stamp duty and it is placed in office account then that money must be paid out or transferred the SAME day as the receipt. This rule provides a firm deadline for handling these matters and when considering breaches of the deadline we will consider whether there was in existence a system that properly identified moneys to which this rule may apply and has controls to ensure payment within the two-day limit.
• Rule 19.3 provides that once client money has been earmarked for costs (after giving or sending a bill of costs or other written notification of costs) it becomes office money and must be transferred to office account within 14 days. In practice this means that the accounts staff must be aware when a fee-earner has earmarked funds for payment of an issued bill or other written intimation either by issuing a retainer bill or otherwise earmarking the funds, it is vital that fee-earners communicate this information to the cashiers.
  
  Rule 20.3 provides that when mixed funds are placed in client account that the office element must be removed within 14 days. This is a doubling of the previous limit of 7 days
• Rule 22 provides the circumstances under which funds can be withdrawn from client account. Significantly the option of withdrawing money on the client's instructions now require those instructions to be in writing or to be confirmed by the solicitor to the client in writing.
• The notes to Rule 23 emphasise that authorities signed in accordance with the rule must be in existence before funds are transferred electronically or by telephone. This includes transfers between client accounts held at different banks, breaches of this rule will usually be considered non-trivial.
• Rule 30 extends the requirements in respect of private loans in that written authority of both the lender and the borrower are now required. When dealing with companies with common or related ownership it is important to remember that each company is a separate legal entity. Funds belonging to one company should not be expended on behalf of another company without written authority, preferably from both companies so that any undisclosed private loans do not breach rule 30.
• The notes to Rule 32 require appropriate identification when mixed moneys are paid into either office or client account, The narrative should contain words such as "mixed funds" - systematic breaches of this rule would not be considered trivial.
• The notes to Rule 32 make it clear that bank reconciliations must be completed before the due date of the next reconciliation, that is a maximum of five weeks after the date at which the account is being reconciled

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