Skyscrapers reflection

Solicitors Regulation Authority update banking facility case studies

Mark Adderley, Senior Manager, Professional Practices 
Skyscrapers reflection
The Solicitors Regulation Authority (SRA) updated their banking facility case studies in March 2023, both revising guidance for some previously issued case studies, and releasing additional case studies.
This update highlights the Regulator’s continued focus on the importance of Rule 3.3, and clarifies their stance on the interpretation of the rule.
Overview of the updated case studies

Trust administration work

  • The case study has been updated to confirm that monies held by a non-SRA regulated Trust Corporation would not be subject to the SRA Accounts Rules, and therefore would not be captured by Rule 3.3.

Commercial rent deposits

  • The case study has been updated to explicitly confirm that the SRA don’t expect firms to be holding rent deposits indefinitely where there is no reason for the money to be held, for example where there is no delivery of regulated services, for client convenience or where no other arrangement is feasible. The case study also confirms that where firms are holding historic commercial rent deposits, they would not consider it proportionate to renegotiate the terms of leases, unless there is an opportunity to do so which is viable for both the client and the other parties. It also confirms that law firms should not hold residential deposits, which should instead be lodged with government approved schemes.
Overview of the additional case studies

Lender’s condition on mortgage offer

  • The case study confirms that in situations where lenders have made conditional mortgage offers, for example settling other debts from mortgage monies, this would not be considered a breach of Rule 3.3.

‘Legal advice only’ retainers

  • The case study refers to an example where a firm is requested to make a Stamp Duty Land Tax (SDLT) payment on a property purchase, where they have not acted on the purchase matter. It confirms that this would be considered a breach of Rule 3.3 as there is no obvious reason for the firm to make the payment.

Sale of the matrimonial home as part of divorce proceedings

  • Where a firm is asked to retain monies pending a court order determining the split of assets, including payment of debts pursuant to a court order, or provided it is part of the divorce proceedings. It also states that firms should be mindful of professional obligations and ensure that:

    • the payment is in respect of an existing debt which would be considered in the resolution of the ancillary proceedings
    • the firm has the written consent of both of their respective solicitors
    • the firm is satisfied that this is not an insolvency situation risking the preferential treatment of one creditor over others.

Parent paying child’s legal fees

  • The case study confirms that where a firm has handled a matter for a parent, and their child has instructed another solicitor in the firm to act on another matter, it would be acceptable to retain monies from the parent’s matter to pay the fees for the child’s matter, provided there are no other red flags as outlined in their warning notice.

Conveyancing and retentions

  • The case study confirms that there is no breach of Rule 3.3 where a firm holds a retention related to a conveyance. It suggests that many retentions can be paid out promptly, but acknowledges that there are instances where the holding of retention monies is required a significant period of time, for example where the adoption of roads is involved. It suggests that in such matters the retention is reviewed on a regular basis to ensure that funds are not held for longer than necessary.

These updates provide clarity for both law firms and their Reporting Accountants on a number of areas where there has been subjective application of Rule 3.3 since they were introduced in November 2019.

Rule 3.3 states that a firm’s client account should not be used to provide banking facilities to a client or third party, and when considering the application of this it is vital that firms consider both the written rule and the case studies in tandem.

What firms need to consider

Firms need to ensure that they consider the intricacies and detail of each individual matter, and are not assuming that the case studies are applicable to matters that have similar characteristics. Each and every matter where there is potential for a breach of Rule 3.3 should be considered in detail, with the unique characteristics and circumstances of the matter benchmarked against the case studies.

If there is any remaining uncertainty, the firm should contact the SRA’s professional ethics helpline or their Reporting Accountants.

Firms should be providing regular training to their teams regarding the application of all areas the Accounts Rules, especially banking facilities, and all fee earners should be aware of the internal protocols to follow. Fee earners should also know who to consult with internally when seeking advice of application of the rules with records of all such consultations being retained. Records of consultations can be needed in case it is ever necessary to defend the firm’s position on a particular situation. One shouldn’t assume that a person who made a judgement call in the past will be available or able to recall the details of the matter should it ever be required.

If you would like to talk more on how these changes may affect you, please get in touch with Steve Gale, Ross Prince, or your usual Crowe contact.

Contact us

Steve Gale
Steve Gale
Partner, Professional Practices and Head of Audit
Ross Prince
Ross Prince
Partner, Audit