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Improper use of client account as a banking facility

SRA Case Study: Trust administration work

Scenario

A law firm administers family or other trusts, mainly for longstanding, UK-based private clients. For some of the trusts the solicitor is the trustee, in others they are acting on the trustees' instructions.

The firm‘s work may involve collecting trust income (for example, from investment managers and rental income generated by properties which are trust assets) and making trust payments, such as distributions to beneficiaries and payment such as school fees and trust asset maintenance payments (ie payments to surveyors), on their trustee clients’ instructions, using client account.

In some cases, the firm may be instructed to carry out transactional work, using trust funds to buy or sell real estate. In other cases, the firm‘s role will be more administrative in nature, documenting the sale or purchase of other assets e.g. cars or artwork, receiving receipt of investment income and paying out trust distributions to beneficiaries (on the trustees’ instructions). Firms will also arrange for the drawing up of trust accounts, using either internal or externally sourced accountancy resource.

SRA's View

Where the solicitors are acting as trustees (for example, as trustees under a discretionary trust, or as an executor), they will be providing a regulated professional service. In this situation, receiving trust income into client account and making payments out of it, would not give rise to a breach of rule 14.5.

The situation is different when the law firm acts for trustees, rather than as trustees. Here the firm's role is more limited to undertaking routine trust administration services, such as collecting income, preparing accounts and possibly checking the terms of the trust arrangement. On the basis that this type of work is part of the normal and longstanding regulated activities of law firms, we do not consider that this type of work, of itself, will breach rule 14.5.

However, allowing clients to place what might be significant funds in a law firm's client account gives rise to risks in relation to potential money laundering or other breaches of the law. The firm will need to be fully satisfied that the arrangements are proper, and the trust is genuine. They will also need to be satisfied and able to demonstrate to us, if required, as to the legitimacy of their instructions and the source of the funds being administered.

In certain situations, it may be more appropriate for the law firm to agree to operate the client's own account rather than allow its client account to be used in this way. That does not however remove the need for firms to make sure that they are not facilitating impropriety in any way.

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