Legal Services Act 2007 - changes to the Solicitors' Accounts Rules 1998
Comments from ACCA
21 April 2008
ACCA is pleased to have this opportunity to comment on the consultation paper ('the paper') of proposed amendments to the Solicitors' Accounts Rules 1998 (SAR).
We view one of the key issues raised in this consultation as being the introduction of the concept of 'manager' and in particular how this translates to non-lawyer managers with regards signing on client accounts.
We welcome the recognition of non-lawyers as potential managers in a full alternative business structure (ABS). We believe they can considerably broaden the service offered by the law firm, and therefore should be recognised as doing so. For example accountants who are either partners in a partnership, members of a limited liability partnership (LLP) or directors of a company, can offer sound financial and business advice adding value to the work of the lawyers.
Signing on client account
Amendments to rule 23 extends the right to sign for client account withdrawals to non-managers, who as the consultation rightly points out, will have been subject to character and suitability checks by the Solicitors Regulatory Authority (SRA).
We note that the paper (paragraphs 7.3 and 7.4)) suggests that managers or employees who are certified or chartered accountants be given the right to authorise client account withdrawals, even if this right is denied to other non-lawyer managers. This is then qualified with the proposal to require an additional signature should this non-lawyer be in charge of the accounts department (Rule 23(1A)).
We acknowledge that there is potentially an increased risk to client money by the single authorisation of such withdrawals. Equally, we accept that the firm should establish clear procedures and systems for client account authority signatures. However, unlike the proposal in Paragraph 4.1.B of Appendix 3 which states that systems should be in place where non-lawyer signatories are in charge of the accounts department, we believe that all firms should perform a risk assessment and then put in place appropriate control systems. This should be regardless of whether signatories are non-lawyers.
We therefore believe that SRA should provide guidance on thresholds for when two signatories should be required, but should not take a blanket approach to this. Clearly, the signing of a cheque for £1,000 may not be significant for one firm, but could be for another. It should therefore be the responsibility of individual firms to perform their own risk assessment and then apply these thresholds accordingly. ACCA would be more than willing to assist in the development of such thresholds as part of the SRA guidance.
We also wish to emphasise that the stress on non-lawyer managers is not warranted given that there are no proposals to extend the rules on double-signing of client account withdrawals for legal executives and solicitors. Again, the importance should be given to the firm's risk assessment procedures regardless of whether signatories are lawyers or not. We can envisage scenarios where to avoid the time constraints of acquiring two signatories, the responsibility of signing is simply transferred to a lawyer, which in certain circumstances may be of greater risk to the firm.
Allowing firms the scope to set their own safeguards in this way is consistent with the Solicitors Code of Conduct 2007 (Rule 5). Therefore we would agree with the alternative approach in the paper, where Rule 23 of SAR continues to set out the categories of persons permitted to sign on client account, but not to prescribe circumstances where more than one signatory is required. However, we do believe that the Rules should incorporate the responsibility for performing a risk assessment and issuing appropriate firms guidance.
Controlled trusts
We agree with the abolition of the concept of 'controlled trusts' and the uniting of the provisions in the SAR for the treatment of client money and trust money for interest purposes. This not only ensures that clients will be treated fairly in terms of payment of interest on money held for them, but by providing a single set of requirements for solicitors to work from, should simplify the solicitor's obligations to account for interest on trust money.