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SPONSOR - PKF Francis Clark - Is your practice providing banking facilities whilst acting under a Lasting Power of Attorney / Court of Protection appointment?
SPONSOR - PKF Francis Clark - Is your practice providing banking facilities whilst acting under a Lasting Power of Attorney / Court of Protection appointment?
Is your practice providing banking facilities whilst acting under a Lasting Power of Attorney / Court of Protection appointment?
In December 2014 the SRA issued a warning notice on the improper use of a legal firm’s client account as a banking facility.
The notice served as a reminder and provided additional clarification that a legal firm must not provide banking facilities through their client bank accounts. Whilst this requirement has in fact been in place for some time and is as stated in the SRA Accounts Rules 14.5, the issue of the warning notice generated a number of enquiries in the legal sector.
A common enquiry from the above related to firms, where a solicitor has for example been appointed under a Lasting Power of Attorney and the client has subsequently become mentally incapacitated. Alternatively the solicitor has been directly appointed as a deputy under a Court of Protection in their professional capacity.
One of the duties that can apply under these appointments through The Office of the Public Guardian for mentally incapacitated clients is to manage the client’s financial affairs to settle items such as household utility bills, etc. on their behalf.
This has led to a debate, on if it is considered acceptable for a solicitor in a law firm acting under these types of appointments, to hold the incapacitated client’s funds within the firm’s client bank accounts as part of the financial duties.
What is the proposed justification to use the firm’s client account to hold the clients funds under these appointments?
The main justification put forward, so that firms could hold such funds in their client bank account to manage the financial duties of a mentally incapacitated client, is by virtue the solicitor has been appointed to provide the service as a result of their professional standing. In addition as a result of the appointment in this professional capacity the solicitor would issue fees for providing this service.
It was therefore considered that it could be justified that there was an underlying legal transaction. This was seen to be supported by virtue the client is mentally incapacitated and not capable to manage their own financial affairs. It could therefore appear to be reasonable to assume that the solicitor could hold the clients fund in the firm’s general client bank account.
Additional points had been put forward to use the firm’s client bank account in these situations; these are:
i) Provides additional protection to the funds being held in a client bank account as afforded from the full application of the SRA Accounts Rules 2011 ( As opposed to a limitation of the SRA Accounts Rules 2011 within rules 8/9/10)
ii) Where such funds are recorded through the general client bank account and the legal firm’s accounting records, this would enable a greater oversight of the transactions other than just the appointed attorney / deputy themselves.
iii) Allowing the attorney / deputy to appropriately delegate routine processes / tasks under the appointment (but not responsibility) within the firm.
iv) As a result of iii) achieving a cost benefit and improved efficiency in dealing with the case type for the benefit of the client matter.
All of the above appear to be reasonable justifications to place the client funds into the firm’s client bank account, in order to manage the financial duties under the appointment for the incapacitated client.
However it has been apparent there has been conflicting guidance in the legal sector on the above application.
Clarification on the use of the client bank account whilst acting under a Lasting Power of Attorney / Court of Protection.
We have sought informed clarification on this particular issue based on the facts above. This has been supplemented with the issue of the Public Guardian practice note 02/2016.
The guidance provided in this area is fundamental, in that performing the financial duties as required by the solicitor under these appointments through The Office of the Public Guardian, for an incapacitated individual, does not constitute an underlying legal transaction connected to the legal practice.
As emphasised in the SRA warning notice on the improper use of the firm’s client bank account to provide banking facilities, if there is not an underlying legal transaction, the legal practice’s client bank account cannot be used to hold the client funds.
This is clearly a significant factor and it is therefore important that firms do no fall foul of this and inadvertently provide banking facilities through their client bank accounts.
In these situations the solicitor should either operate the clients own bank account, open a joint account with the client or utilise a specific deputyship account to undertake their financial duties under these appointments.
It is however worth highlighting that where the legal practice is acting for an underlying legal transaction that is connected with an appointment as attorney or deputy, such as a sale or purchase of property for the client then the funds can be held within a firm’s client bank account in accordance with the SRA Accounts Rules 2011.
The Public Guardian notice 02/16 does however state that where a practice does hold the clients funds for a connected underlying legal transaction, they view that under the duties required by the Office of the Public Guardian, these funds should be held in a separate designated client bank account within the legal practice.
Whilst the above may not provide the outcome certain legal firms were seeking, it does provide some more definitive clarification in this area so that firms can avoid the pitfalls of providing a banking facility from such appointments.
If firms are aware they have inadvertently provided banking facilities in the above situations it is important the position is promptly rectified. Firms should also consider any reporting requirements that may be required.
If applicable the firm’s procedures should be reviewed and updated accordingly to ensure that such funds held under these appointments in order to manage the financial affairs of the incapacitated client, are not placed into the firms client account.
If any legal firms do have any concerns from the above they should contact the SRA’s professional ethics team who can assist in these matters as required.
This publication is produced by Francis Clark LLP for information only and is not intended to constitute professional advice. Specific professional advice should be obtained before acting on any of the information contained herein. Whilst Francis Clark LLP is confident of the accuracy of the information in this publication (as at the date of its issue), no duty of care is assumed to any direct or indirect recipient of this publication and no liability is accepted for any omission or inaccuracy.
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