Another day, another consultation by the SRA on consumer protection. Whilst no-one is going to claim this isn’t a vital topic (upholding public trust and confidence in the profession and acting in the best interests of clients are core ethical duties), it could be easy to dismiss this:
- Is it really going to achieve anything?
- Do we have confidence in the SRA to assess and deliver consumer protections, given their complete denial of any responsibility for the big issue that caused all of this (the Axiom Ince disaster)?
- And can we really be bothered to wade through what is, again, another wordy, complicated and arguably inaccessible consultation document? Many of us are still suffering from post-numeric stress disorder from trying to tackle the SRA’s examples from the consultation on calculating fines.
Responding to this consultation is crucial, though. What the SRA really needs are people’s practical experiences and suggestions. The consultation is divided into three parts – one on holding client money, one on protecting client money, and one on the compensation fund model.
This blog will focus on part one only – parts two and three incoming in later editions!
Part One: Solicitors holding client money (subtext: should we at all?)
Residual balances (questions 1-4)
- Subtext: should there be a set period (12 weeks is suggested in the consultation) to return funds after a matter completes?
- Tell the SRA:
- When you see residual balances arising. Property work is a key area and one exacerbated by third party issues (I’m looking at you, HMLR and management companies). Are there other areas? Make it clear how painful it can be to clear balances. If you have a post-completion assistant, ask if they can outline the difficulties. Can you give some particularly egregious examples?
- Would 12 weeks be a satisfactory starting point to require the return of funds? Would another 12 weeks be sufficient to allow you to trace the client/send the money to charity?
Interest on client account (questions 5-8)
- Subtext: should firms be allowed to benefit from client interest?
- Tell the SRA:
- How you deal with interest on client account. Do you pay it to clients, or do you keep it? Do you tell clients what you do? Do you have any agreements to receive less or no interest – and what do you get out of that (they’re thinking of things like reduced banking fees)?
- What do you think about the proposal that firms shouldn’t be able to keep any interest? Is it fair that clients be allowed to benefit from favourable interest rates negotiated by your firm?
- Make it clear (again) how painful it can be to calculate and apportion interest. Does your finance team have to do it manually? Is it tricky to do at short notice? How have you dealt with interest accruing over a long period, with interest rates changing all the time?
- In reality, have you lost out by paying client interest? What about the time you need to spend on this? Is it chargeable?
Moving money from client to office (questions 9-12)
- Subtext: do firms have too much flexibility to designate money as office money when maybe it’s really still client money?
- Tell the SRA:
- Is there any legitimate reason to transfer from client to office before the work has been completed? Overall business cashflow might not cut it – but perhaps in certain practice areas, there is a good reason.
- Do you ever agree with clients that you hold their money under an alternative arrangement? The wording of this question (no. 12) implies this is very much a research question so do let the SRA if and how this happens.
Advance fees – or as we would generally call it, money on account (questions 13-14)
- Subtext: are firms taking advantage by requesting this and should it be restricted?
- Tell the SRA:
- How vital it is to obtain money on account. In what areas do you ask for it? On what basis? Make it clear all the things it is necessary for, including paying for disbursements but also covering the initial stages of advice. Do you find that “serious” clients (e.g. ones who are committed to obtaining proper legal advice) are happy to pay this? Does it assist with moving matters forward?
- They also ask whether there should be more prescriptive rules around asking for it. Are there areas in which it is not appropriate? This could be an opportunity for your corporate/commercial or private client/wealth lawyers who hold ongoing advisory retainers for clients to comment.
Alternatives to the model of solicitors holding client money (questions 15-18).
- This is the big one – subtext: should the SRA stop solicitors holding client money, full stop?
- Tell the SRA:
- what would happen if firms weren’t allowed to hold client money? What areas of law might this particularly impact (transactional work is an obvious one)?
- Are you someone who actually has experience of an alternative model? Do you have experience of working in another country where lawyers don’t hold client money directly? One example is France. Anecdotal evidence suggests that they deal with far fewer transactions than UK law firms would and that delays are common – but also, that this works (or kind of) because the French model of providing legal services as a whole is so different to the UK. Can you comment more specifically? Do you have other jurisdictional experience?
- If you have experienced a TPMA, please give the SRA your feedback on this. Does it work? What areas were difficult? Does it actually cause delays or is it pretty efficient? Did you have to reassess your workflows? How did your clients find it?
- Something the compliance folks have wondered is how source of funds/wealth analysis would work. Who is ultimately responsible for it and how far would a firm be able to go in checking that the funds have come in from where they were meant to? If you’ve done it, can you identify any areas that need to be thought about?
Responding to the consultation:
The link to respond is here (look for the big red button).
This page also contains the consultation paper as distilled above. The deadline to respond is 21 February.
You do not have to answer every question nor do you have to spend ages wording your answers beautifully. More important is getting it down. Do it in bulletpoints if that’s easier: you just want to be getting your point across.
It’s yet another thing to do on a busy day and it’s easy not to – someone else has probably got your experience and will probably respond. But they might not, and it is key that the SRA get as much information and accounts of practical experience as possible. So please do respond: as the old Dr Pepper advert said, what’s the worst that could happen?
(Parts Two and Three coming in future editions…)