How can solicitors handle banking super-glitches?

Hundreds of thousands of RBS Group customers were disappointed recently when issues arose with bank transfers. The glitch caused many people to be left waiting for their wages and for other overnight transfers to be transacted. What no doubt added to the frustration was that it appears lightning can strike twice (or more times) when it comes to the RBS Group: a similar large-scale issue in June 2012 rumbled on for days, causing massive disruption for customers suddenly unable to access their money.

The 2012 problems also caused delays in property completions for anyone who had bank accounts with the RBS Group, leading to disgruntled clients suddenly unable to move into their dream homes. They probably vented some of that frustration on their solicitors.

Hopefully, such banking super-glitches will not become the norm, but their repeated occurrence does suggest
that people will be left inconvenienced again when
their money becomes temporarily inaccessible. But what can solicitors do to ensure that even if their bank goes haywire for a while, they remain compliant with the Solicitors Regulation Authority (SRA) Accounts Rules 2011? Below are a few 'dos and don'ts' to keep in mind for any solicitor marooned by their bank.

Practitioner guidance dos:

• Keep a record of any breaches. Maybe the next banking problem occurs as the 14th day comes around to transfer those funds to office account that had been held in client account but related to your fees. For whatever reason, you have not transferred it yet, but you are intending to get it transferred in time, and then the bank stops working. Although it is the bank’s fault that you suddenly cannot make the transfer, a breach is still a breach. So, ensure that it is recorded on your compliance officer for finance and administration’s register of breaches. However, it is unlikely to be an item that has to be reported to the SRA as it is immaterial; and
• Check with the SRA for any guidance. When relevant, significant issues arise, the SRA will likely provide some guidance, which may even be an update on previous guidance. Make sure to check in with them to ensure you are working with the most up-to-date guidelines.

Practitioner guidance don'ts:

• Use an office account as a client account. If you happen to have an office account with an unaffected bank but a client account with the stricken bank, resist the temptation to suggest that client money is paid into your office account to allow property transactions to take place. Unless you are feeling very generous with office money and are willing to effectively loan the client the funds first, you will just need to wait until your client account is up and running again;
• Do not forget that the provisions in rules 17 and 18 of the Accounts Rules only allow for the temporary banking of mixed funds into office account in the rare instance where there are unpaid professional disbursements that will be paid by the end of the second working day or transferred to client account – there is no other acceptable reason for client money to ever be in office account and definitely not where the funds are solely client money (as will be the case for a mortgage advance);
• Send out cheques ‘because they won’t clear before the problem is resolved’. If you are waiting for funds to come into your non-functioning account, be aware that you should not be sending out cheques on those funds. Even though the beleaguered account will probably not be withdrawing the funds for the cheque, this does not mean that you have successfully circumvented an overdrawn client ledger. Guidance note (i)(b) to rule 20 explains that funds are deemed to be withdrawn ‘when you despatch a cheque, unless the cheque is to be held to your order’; or
• Be the good Samaritan. Maybe you are completely unaffected by the crisis but another local solicitor is finding themselves unable to complete a transaction for their client, so they request that you receive the funds for them and pay it onwards on their behalf. Although it may seem a benevolent act carried out with good intentions, do not agree to this. The SRA indicated that solicitors who did this in 2012 should receive a qualified accountant’s report for their reward. Your client account is for your clients, not for someone else’s.

By abiding by the above suggestions, at least you will be able to stay on side with the Accounts Rules. SJ

Simon Sheppard is an accounts and outsourcing chartered accountant at Kreston Reeves