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The SRA Standards And Regulations 2019

The SRA Standards And Regulations 2019

Wednesday 30th September 2020

The SRA Standards and Regulations apply to all those the SRA regulates, including solicitors, RELs, RFLs, authorised firms, managers, and employees. They also affect persons and the parts of a licensed body involved in delivering the regulated services.

There are seven required regulations where you act:

1. In a way that endorses the constitutional basis of the rule of law and the proper administration of justice
2. In a way that supports public trust and confidence in the solicitors' profession and legal services provided by authorised persons.
3. With independence.
4. With honesty.
5. With integrity.
6. In a way that encourages equality, diversity, and inclusion.
7. In the best interests of each client.

It is crucial to notice that SRA Standards and Regulations 2019 replace the SRA Handbook from 25 November 2019. These regulations are relevant to all law firms and sole practitioners authorised by the SRA.

If you have residual client balances it is vital to consider the following SRA principles:

● principle 2: act in a way that upholds public trust and confidence in the solicitors' profession and provided authorised persons legal services
● principle 4: act with honesty
● principle 5: act with integrity
● principle 7: act in the best interests of each client
SRA Account Rules
The primary purpose of the Rules continues to be the protection and security of client money while requiring more accurate client account management and record-keeping.

Under rule 2.5 of the SARs, you are obligated to give back client money to your clients rapidly. This means as soon as there is no longer any justification to hold those funds.
The rule also applies to those payments accepted after you have already calculated it to the client. For instance, a refund must also be paid to the client rapidly.
Your responsibility to give back funds which lawfully belongs to a client includes all balances, nevertheless of how small the sum is, and whether or not the money is held in a client account.

If funds are to be kept, you should notify your client rapidly in writing, and present details of the amount held at the end of the affair and the reason for retaining it.

It is an excellent idea to tell your client in writing once a year of the amount of client money still held and the justification for retention. Do it as long as you continue to keep that money.
Residual Client Balances
Residual client balances are any unobligated, unspent balance remaining from the funds received from a client. These remaining client balances should be returned to clients at the end of a matter.

The reasons for being a residual balance include:

● Refunds received by the firm after the matter has ended
● Interest has been earned
● Dividends are declared
● The firm has delivered a cheque, but it has not been cashed
● The client is unresponsive and has not given instructions on how to deal with the funds
● Disbursements have been misapplied and sent back after the end of the matter
● Retentions have not been claimed
● The money has been kept to pay a third-party
● The result of book-keeping and accounts practices
How To Deal With Residual Client Balances
As we already mentioned, under rule 2.5 of the SARs requires you to return client money to the client as soon as the matter end. However, doing this might not be as easy as it might seem. If the client fund remains unclaimed, you need to take the necessary steps to locate your client or otherwise determine the owner of the residual funds.
12 Ways To Locate Your Client
It is your responsibility to make reasonable attempts to locate your client. It is an excellent strategy to find the client by referring to the circumstances, including the amount of money remaining and the costs associated with tracing the owner of the funds.

You could trace your client by doing the following:

● Call the phone number in his or her contact information
● Send a letter to his or her register address
● Contact the client via third parties
○ Family members
○ Client's employer
○ Bank
● Do an internet search with your client personal information
● Check the electoral roll
● Use social media such as:
○ Facebook
○ LinkedIn
○ Instagram
● Use the telephone directory
● Try using the Department of Work and Pensions
● For more substantial residual funds you can place a newspaper advert
● For more significant remaining funds you can hire a private investigator
● For corporate clients use Companies House
● Search with the Probate Registry

If you traced your client but fails to cash a cheque or to tell you about the disposal of residual funds, you should contact the client to say to him that you will apply to the SRA for authorisation for the money to be withdrawn and transferred to charity unless you are instructed the contrary within a reasonable time.

On some occasions, after you have successfully traced the client, he or she will tell you to deal with the disposal of the residual balance at your discretion. Here your client must provide you with written consent to donate the balance to charity, indicating which charity they wish to give the money to. Only then can you donate from the client account, clearing the balance and client ledger.

If the residual fund is used to cover your expenses, you must comply with the process under rule 4.3 of the SARs that allows you to transfer the money out of the client account to make the payment. However, if the client is untraceable, you cannot follow this procedure as you will not be able to deliver a bill of costs incurred to the client.

When you have exhausted all reasonable attempts to trace your client, then you must seek the SRA's prior written authorisation to withdraw the funds under the rule 5.1(c) of the SARs and donate them to charity.
Withdrawal Of Funds From A Client Account
Residual Balance of Less Than £500
When a client is untraceable or has not given instructions for dealing with residual funds, you should request the SRA's written authorisation for withdrawal of the funds under rule 5.1(c) of the SARs.
If the prescribed circumstances apply you can withdraw client money from client account to pay to a charity of your choice. The prescribed circumstances are for residual client account balances of less than £500 on any client that meet the following conditions:

● The remaining balance is paid to a charity of your choice
● You have made all the necessary steps to trace the owner to return those funds. Keep in mind that the SRA will expect you to make more intensive efforts to locate the wonder for more significant or recent residual balances.
● You keep a record of the steps taken to return the money to the owner. You need to retain these records and all relevant documentation for at least six years.
● You keep relevant account records, including:
○ A central register which records:
■ name of the owner
■ amount
■ name of the recipient charity
■ date of the payment
○ All receipts from the charity and confirmation for the sum they have received
● You do not withdraw from the residual balance any costs incurred in attempting to trace the owner

If you choose to donate the funds to a charity that does not offer an indemnity, you will be liable to pay the money to the client if the client claims those funds later.
What Happens If The Prescribed Circumstances Do Not Apply
If the prescribed circumstances do not apply; you will need to request the SRA's written authorisation for any withdrawal. You will need to provide the SRA with the following information:

● the amount in question
● how much time the money has been held
● what attempts you have made to contact the client,
● evidence that the reasonable costs of attempting to contact the client are likely to be excessive to the residual fund

You must apply for authorisation using the prescribed application form.
Besides the above information, when you apply for authorisation to withdraw funds from a client account, the SRA will request the following information:

● The name of the client (if known)
● The name of the client account in which the money is held.
● Details of the amount and any accumulate interest
● Details of attempts made to trace the rightful owner of the money
● How much time since the money became due to the client
● A suggestion of what you propose to do with the money if the SRA authorizes to withdraw it

The faster the application will be handled, the higher the attempts to locate your client before filing your claim. Keep all the documents relating to the searches you have carried out.

It is essential to understand that if the expenses incurred during attempts to trace the client are up to £500, the funds can be deducted from the residual balance. However, the SRA does not have any legal authority to authorise such expenditure.

If you trace the client, you must negotiate with the client whether you will withdraw any expenses from the money held. If the client remains untraceable, the SRA would typically require only the amount over and above the costs to be paid to charity.
Accounting Functions
According to rule 12.1 of the SARs, you will need to get an accountant's report for any accounting period in which you held or received client money. The report should be given to the SRA if it is qualified to show a failure to comply with the SARs.

It is not your accountant's responsibility to establish the identity of, and to trace, the owner of unclaimed client money.

You must continue to obtain accountants' reports up to date until the SRA granted the authorisation to close your client account.

When the SRA grants authorisation to withdraw money from a client account, you will remain liable to account to the owner if reappears or is traced at a later date.
Preventive Actions
It is good to collect appropriate information from clients such as their National Insurance Number to prevent future problems.

You should include information in the client care letter about what will happen to residual funds if clients cannot be traced after the closure of a matter. For instance, you can explain to your clients that small remaining funds can be donated to charity.

Don't forget to write down these arrangements based on the SRA Code of Conduct for Solicitors, which states your obligation to treat your clients fairly and the stipulations on dealing with client money in the SARs.

For more information you can contact:

● SRA Accounts Rules
● SRA
● Department for Work and Pensions (DWP)
● SRA professional ethics team