Pambos Patsalides provides an update on the amended Solicitors' Accounts Rules.
The Solicitors' Accounts (Residual Client Account Balances) Amendment Rules 2008 revise the Solicitors' Accounts Rules (SAR) 1998 with effect from 14 July 2008.
The amended rules introduce a number of obligations, including returning surplus funds and reporting on retained funds. However, they also allow solicitors to be more lenient when dealing with small leftover balances.
Revised rules
Under new rule 15(3), solicitors are obliged to return client money promptly as soon as there is no longer reason to retain the funds.
New rule 15(4) requires solicitors to inform a client promptly of the amount of any funds retained at the end of a matter and explain why they have been retained.
If funds continue to be retained, the client must be informed in writing, on at least an annual basis, of the reason for the ongoing retention.
Under the old rules, tracing the rightful owners of numerous very small balances was inefficient. The amended rule 22 allows solicitors to withdraw leftover balances of £50 or less from client accounts without prior authorisation from the Solicitors' Regulation Authority (SRA). This is subject to them paying the balances to a charity and complying with the safeguards set out in a new rule 22(2A).
However, SRA authorisation is still required for amounts exceeding £50 or for those not to be paid to a charity.
New processes
The Guidelines for Accounting Procedures and Systems state that policies and systems should be established to ensure that firms comply fully with the rules. Solicitors wishing to deal with leftover balances of £50 or less, without prior SRA authorisation, will need to set up appropriate internal procedures and systems to ensure compliance with the new provisions of rule 22.
New paragraphs 4.6 and 4.7 of the guidelines state that policies and systems should be established for the timely closure of files, the prompt accounting for surplus balances and the reporting to clients when funds are retained.
The reporting accountant will be required to check the procedural side of the rule 22(2A) requirements for any accounting periods ending after 14 July 2008. Under rule 29, the reporting accountant is also required to report on any substantial departures from the guidelines.
Fee earners should become familiar with the rule changes as they will be best placed to ensure client monies are returned promptly and to inform the client of any monies retained and the reason for that retention. The obligation to write to all clients, on at least an annual basis, may be better dealt with on a firm-wide basis by the practice. Firms should ensure that client accounting systems and staff are kept up to date with the new rules and procedures.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
