There are increasing reports of law firms allowing their client account to be used by others as a bank account in clear breach of the rules, the Solicitors Regulation Authority (SRA) warned yesterday.
It also said that it was no longer appropriate for firms to receive and hold funds for clients to enable them to pay routine bills and invoices on clients’ behalf.
The SRA has published a warning notice  to remind solicitors why client account should not be mis-used for clients or others.
Payments into client account or transfers and withdrawals from it must relate to a solicitor’s normal regulated activity, as outlined in rule 14.5 of the SRA Accounts Rules 2011.
Declaring that “providing banking facilities through a client account is objectionable in itself”, the SRA emphasised that there must be a “reasonable connection” between the underlying legal transaction and the payments.
The warning notice continued: “The seriousness of the breach will be aggravated by indications that the funds were paid into, or transferred out, of client account, to avoid responsibilities imposed by insolvency legislation or to perpetuate suspected financial crime or tax fraud.”
In 2013, London practice Fuglers and its two equity partners were fined a record £75,000 between them for allowing Portsmouth football club to use its client account as a banking facility to service its day-to-day trading activities, a decision upheld last year  by the High Court.
Historically, some solicitors have agreed to hold money in client account to deal with bills and invoices for clients’ convenience, such as if they are abroad or incapacitated.
But the SRA said: “In view of technological advancements, in particular the ease of internet and telephone banking, we consider that allowing client account to be used in this way is no longer appropriate…
“Allowing clients to hold anonymously what might be significant funds in a client account gives rise to significant risks in relation to potential money laundering or other breaches of the law, such as exchange control consent regulation. The anonymity of client accounts is attractive to criminals.”
David Middleton, executive director for legal and enforcement, said: “The High Court and Solicitors Disciplinary Tribunal have made it clear that law firms must not mis-use client account by effectively providing a banking facility for clients. The role of law firms is to provide legal services, not to provide banking facilities.”