New Solicitors Accounts Regulations came into Operation on 1 July 2023
Locations
The 2014 Regulations continue to apply in relation to the filing of the reporting accountant’s report where the accounting period has commenced before 1 July 2023, as well as any proceedings that have commenced pursuant to Regulation 35 of the 2014 Regulation that had not been fully completed by 1 July 2023.
The key aim of the 2023 Regulations is to increase protection for client monies which are held by and/or dealt with by solicitors.
Key Changes
The responsibility for a breach of the 2023 Regulations applies to solicitors who are principles, partners and solicitors who handle client monies.
The key changes for solicitors implemented by the 2023 Regulations are as follows;
Client Moneys
- The definition of "client moneys" has been extended to include moneys received on behalf of a personal representative of an Estate and accordingly, these funds are now to be lodged to the client account (Regulation 2(1)).
- The definition of "client moneys" does not include moneys received or held by a solicitor, other than in respect of legal services provided (or to be provided) by a solicitor, arising from that solicitor’s practice as a solicitor (definition of client moneys at (f) of Regulation 2(1)).
Balancing Statements
- Client account balancing statements are required to be prepared more frequently under the 2023 Regulations and must now be prepared every 3 months rather than every 6 months (definition of "balancing date" at Regulation 2(1)).
Moneys in a Client Account
- Solicitors cannot pass personal moneys through the client account (Regulation 5(4)).
- Monies in a client account should be returned as soon as is practicable after completion of legal services and must be not be held for longer than 6 months after completion (Regulation 5(5)).
Withdrawals from Client Account
- If moneys held in a client account are being used to pay for the solicitor's professional fee, this must be made clear in writing to the client (Regulation 7(1)(a)(iii)).
- All withdrawals from a client account must specify the client to whom it relates at the time of the withdrawal.
- If a deficit cannot be rectified within 7 days of it coming to the solicitors attention (or when it ought reasonably to have come to the solicitor's attention)then the Society is to be notified in writing as soon as practicable (Regulation 7(3)(b)).
- If monies are withdrawn from a client account to make cash payments, documentary evidence is required, which should include the witnessed signature of the recipient of the moneys (Regulation 9(3)(c)).
- The person authorised to sign client account cheques or to authorise electronic transfers is to be a partner (or the sole practitioner as the case may be) in the firm who has a valid practising certificate in force. If there are co-signatories / authorisers then at least one is to be a partner. A person other than a partner or the sole practitioner can only be an authorised signatory / authoriser with prior written approval from of the Society (Regulation 9(5)).
Duty to Furnish Bills of Costs
- A statement of account with all monies received, paid or held in respect of each client matter is to be provided to clients, whether as part of the bill of costs or otherwise (Regulation 12(2)).
- Solicitors must maintain documentary evidence on each file re compliance with Sections 149 – 153 of the Legal Services (Regulation) Act 2015 relating to solicitors duties as regards legal costs (Regulation 12(3)).
Books of Accounts to be Maintained
- Solicitors must review the listing of client ledger balances for undue or unnecessary delay, particularly re discharging undisbursed outlay, moneys due to client and moneys to be paid on behalf of clients. Immediate action should be taken where appropriate to deal with such matters (Regulation 13(8)(e)).
- Client ledger balances which are outstanding for 2 years or more are to be reported to the Society as part of the reporting accountant's report and the reason for the outstanding balance is to be disclosed, together with action taken or proposed to be taken to deal with same (Regulation 13(8)(f)).
Minimum Accounting records
- To ensure there is an appropriate record of transactions maintained, solicitors must maintain the following records (Regulation 25);
- a record of electronic funds on a client account on the client file;
- the record must also be retained on a separate file dedicated to such transactions;
- back-ups of computerised information are to be performed on a timely basis and stored otherwise than at the practice premises;
- accounting records for at least the current and previous financial year must be retained at the practice premises;
- a register of moneys held on joint deposit and a register of undertakings are to be maintained.
Duty to Furnish Accountant's Report
- A solicitor shall ensure that the reporting accountant's report is to be furnished to the Society within 5 months of the accounting date. An extension of 1 month can be sought in writing 14 days prior to the date on which it is due (Regulation 26(a) and (b)).
- If a solicitor is ceasing practice the final accountants' reports are to be filed within 3 months of the date they are ceasing practice, or such time as agreed with the Society (Regulation 33(3)).
Borrowing from Clients
- Solicitors are prohibited from borrowing from a client unless the client has been independently legally advised, or their business is lending money. Funds in a solicitors client accounts cannot be used for the purposes of loans (Regulation 35).
Acknowledgements
- The compliance partner or the sole practitioner, as the case may be, must confirm the following (see form of acknowledgement at Part IV of the Schedule to the 2023 Regulations);
- each client and office balancing statement has been approved by them;
- client ledger balances have been reviewed for undue or unnecessary delays (e.g. discharging undisbursed outlays, moneys due to clients or to be paid by clients);
- the list of client ledger balances outstanding for 2 years or more have been approved by them;
- computerised information is backed-up on a timely basis and stored securely other than on the practice office premises.
The 2023 Regulations also include some changes that apply to reporting accountants, which include;
- Only an accountant who is a member of one of the accounting bodies as per the 2023 Regulations can act as a reporting accountant (Regulation 26(4)(a)).
- Reporting accountants are to test check postings to client ledger accounts from records of receipts and payments of client moneys immediately before and after the accounting date and on at least one other balancing date (Regulation 28(2)).
- The reporting accountant is also to test check that transfers of moneys from a client account to an office account are supported by appropriate bills of costs and the written agreement / notification with the client re the transfer in this regard (Regulation 28(2)).
- If a reporting accountant suspects that there is a deficit of client funds which cannot be rectified in 7 days, or there are entries which attempt to conceal the existence of a deficit, the reporting accountant may directly notify the Registrar of Solicitors of this (Regulation 28(6)).
Conclusion
The key changes to the solicitors' financial regulatory regime brought about by the 2023 Regulations are aimed at ensuring there is greater protection for client moneys that are held or dealt with by solicitors in the course of their practice as a solicitor as well as modernising and clarifying provisions of the 2014 Regulations.
All solicitors who deal with client moneys need to ensure familiarise themselves with the new requirements and obligations imposed by the 2023 Regulations which are now in force.
Written by: Aisling Ray
The key changes to the solicitors' financial regulatory regime brought about by the 2023 Regulations are aimed at ensuring there is greater protection for client moneys that are held or dealt with by solicitors in the course of their practice as a solicitor as well as modernising and clarifying provisions of the 2014 Regulations.
All solicitors who deal with client moneys need to ensure familiarise themselves with the new requirements and obligations imposed by the 2023 Regulations which are now in force.
Written by: Aisling Ray