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Client account interest

What professional firms need to know

Mark Adderley, Senior Manager, Professional Practices
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Rule 7.1 of the SRA Accounts Rules requires firms to account to clients or third parties for a fair sum of interest in respect of monies held on their behalf through the course of a matter. While this has largely been a non-event in recent years due to the prolonged low interest rates, the recent rises to the Bank of England base rate has brought this subject very much back into focus.

What is a fair de minimus amount?

While the 1998 rules prescribed a de minimus amount of £20, the rules no longer specify such a de minimus amount, and it is up to firms to decide what is a fair amount. While some firms have still retained the £20 amount, many firms have increased this, and we typically see firms paying de minimus amounts ranging from £20-£50, per matter.

When it comes to assessing what is a fair amount, firms should be alert to their clients. Firms with a predominantly corporate client base may set a higher de minimus than firms whose clients are primarily private clients. Again, firms with a client base consisting of high-net-worth individuals may consider a fair amount to be higher than a typical high street firm with a varied client base.

Any policy or decision to has to be in the client’s best interests. Firms should ensure that they have documented their judgements when reaching this decision.

What is key, is that a firm can demonstrate that they have given due consideration to their interest policy when determining what is a fair amount, remaining alert to Rule 3.3, which prohibits the provision of banking facilities through client account. Therefore, we would not anticipate that a firm would offer interest rates in excess of high street banks.

Receiving benefits

If a firm receives benefits from their bankers in return for reduced client account interest rates, for example reduced banking charges or free banking for partners, then a firm should not place a client at a disadvantage as a result of this. In these circumstances, it would be unlikely to be appropriate for a firm to base its interest rate on the rate received on the general client account.

Typically, firms pay the rate that they receive on their general client account, while some firms will pay the rate offered at their bank on an instant access savings product. During the current period of increased interest rates, firms should ensure that their system rates are updated regularly and are in line with the policy stated in the engagement terms agreed with clients. We would suggest that a review of the rate paid is carried out at least each time that the Bank of England base rate is changed.

While the current SRA Accounts Rules do not prescribe that all interest earned on designated deposit accounts should be paid to the client, we typically see that firms have continued to credit the amounts earned on such accounts in full.

Ensuring your firm has an appropriate accrual

From a financial reporting perspective, firms should ensure that they have an appropriate accrual within their financial statements for interest due to clients and should consider how often they choose to credit interest to ledgers. It is important to ensure that this accrual is reflected within a firm’s management reporting, particularly in light of the current Bank of England base rate, which means that an audit adjustment for interest due to clients may well be material to the financial statements. 

It is important to note that reviewing compliance with Rule 7.1 is not within the remit of Reporting Accountants, although many may choose to review policies as part of their work. Therefore, an unqualified AR1 Accountant’s Report does not provide any assurance over the fairness or adequacy of a firm’s interest policy.

Further information

Should you have any queries, please get in touch with Steve Gale, Ross Prince or your usual Crowe contact.


Many professional services firms have had an increase in their bank interest income earned on client deposits.
Firms that hold client money should be carefully considering the risk of bank failure.
Many professional services firms have had an increase in their bank interest income earned on client deposits.
Firms that hold client money should be carefully considering the risk of bank failure.

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Ryan Ketteringham
Ryan Ketteringham
Partner, Corporate audit