Big fine for firm that failed to replace client money wrongly paid out

Hansells: Money eventually replaced

A Norwich law firm has been fined £121,000 for failing for eight years to replace client money which it had wrongly paid out to beneficiaries of an estate.

The fine was equivalent to 3.2% of Hansells’ turnover and reflected the fact that some of the beneficiaries died before they received what they should have done.

The solicitor with conduct of the file, Roger Holden – who is now the firm’s chair – was fined £3,223, equivalent to 32% of his gross annual income.

The Solicitors Regulation Authority (SRA) was able to fine the firm more than the £25,000 limit for traditional practices because Hansells is an alternative business structure (ABS).

An SRA notice published yesterday said that, in 2001, the firm (before it was an ABS) was instructed to deal with the administration of an estate.

“Due to a mistake in the interpretation of the rules of intestacy, it distributed the estate incorrectly. It paid out money to beneficiaries in the wrong amounts. This meant client money had been improperly withdrawn from the client account.”

Between 2001 and 2014, some of it was replaced but on 1 April 2014, when Hansells became an ABS, there was still a shortfall on client account of £22,000 which was not replaced until 25 March 2022, following a qualified accountants report.

The SRA said a fine was appropriate because “the firm’s conduct was serious, and any lesser sanction would not provide a credible deterrent to the firm and others” – it failed to uphold public trust and confidence in the profession and the conduct continued “even after it was known to be improper”.

Other aggravating factors were that “the client account is sacrosanct and any failure to protect client money is serious”, and the beneficiaries did not receive their proper entitlements for years.

“Some of these beneficiaries were elderly, and passed away before they could be properly paid.”

The regulator noted that Hansells only replaced the money after the qualified accountant’s report, which in turn prompted the SRA to begin a forensic investigation.

In mitigation, the SRA noted that there were no findings of dishonesty or a lack of integrity, and the firm had made some admissions, “albeit only once the matter had been referred to a decision maker”.

Mr Holden was appointed as administrator of the estate in 2004, “in circumstances where his interests as a partner at the firm conflicted with the interests of the estate”, the SRA said in a separate notice. He continued to administer the estate until July 2022.

In 2012, he became both COLP and COFA of Hansells and so was also found to have failed in those roles to ensure compliance with SRA rules, aggravating his misconduct.

In mitigation, the SRA said, Mr Holden had a clear regulatory history, there were no findings of dishonesty or a lack of integrity, and he made “some admissions” as to his conduct.

The firm and Mr Holden were each ordered also to pay the SRA costs of £1,350.

The SRA continues to lobby to bring its fining powers for traditional firms in line with those for ABSs, which it can fine up to £250m, and £50m for individuals working in them.

Register for free to watch our webinar tomorrow, The future of regulation – should solicitors continue to hold client money?

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