Joint accounts and third-party managed accounts - Operation of a client's own account

Learning Outcomes

This article explores specific scenarios where solicitors or firms might manage money belonging to clients or third parties outside the firm's main client account. It focuses on the regulatory requirements for operating joint accounts, client's own accounts, and third-party managed accounts (TPMAs). Your understanding of these rules will enable you to identify the correct procedures and potential compliance risks when dealing with these types of accounts in SQE1-style single best answer multiple-choice questions.

SQE1 Syllabus

For SQE1, you need to understand the limited application of the SRA Accounts Rules 2019 (the Rules) when dealing with money outside the firm's client account. It is important to distinguish the specific requirements for joint accounts, client's own accounts, and TPMAs, and recognise the overarching professional conduct duties that still apply.

As you work through this article, remember to pay particular attention in your revision to:

• the specific requirements of Rule 9 (joint accounts)
• the specific requirements of Rule 10 (operating a client’s own account)
• the specific requirements of Rule 11 (third-party managed accounts)
• the solicitor's continuing duties regarding safeguarding client money and assets even when not held in the firm's client account
• recognising situations where these types of accounts might be used appropriately or inappropriately.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which parts of the SRA Accounts Rules 2019 explicitly apply when a solicitor operates a client's own bank account as a signatory under Rule 10?
   1. Rules 2-8 in their entirety.
   2. Only Rule 8.2 (obtaining statements) and Rule 8.4 (record of bills).
   3. Only Rule 8.2 (statements), Rule 8.3 (reconciliations), and Rule 8.4 (record of bills).
   4. Rule 9 (joint accounts) and Rule 11 (TPMAs).
2. A firm decides to use a Third-Party Managed Account (TPMA) provider instead of holding client money itself. Under Rule 11, what key steps must the firm take regarding the client before using the TPMA?
   1. Simply inform the client they are using a TPMA.
   2. Obtain the client's verbal consent and check the TPMA provider is FCA regulated.
   3. Ensure the client understands the arrangements, including fees and termination rights, and provide this information in writing.
   4. Send the client's details directly to the TPMA provider.

3. True or false? Money held in a joint account operated by a solicitor and a client is subject to all the same SRA Accounts Rules as money held in the firm's general client account.

Introduction

While the core of the SRA Accounts Rules 2019 (the Rules) focuses on the handling of client money within a firm's designated client account, solicitors may encounter situations involving money held or managed outside this primary system. For SQE1, it is essential to understand the specific, often limited, application of the Rules and the overriding professional duties that apply when dealing with joint accounts, operating a client's own account, or utilising third-party managed accounts (TPMAs). These alternative arrangements require careful consideration to ensure compliance and safeguard funds.

Joint Accounts (Rule 9)

A solicitor or firm might hold or receive money jointly with a client or another third party, such as a co-executor in a probate matter. This money is typically held in a joint account.

Key Term: Joint Account
A bank or building society account held in the names of two or more parties, including a solicitor/firm and a client or third party, where typically all parties have access or require joint authority for transactions.

Because the account is not solely in the firm's name and operated under its exclusive control, it is not treated as a standard client account under the Rules. Rule 9.1 clarifies that most of the detailed provisions in Rules 2–8 (covering client money and client accounts) do not apply. However, certain record-keeping requirements do remain:

• Rule 8.2 (Statements): The firm must still obtain bank/building society statements for the joint account at least every five weeks.
• Rule 8.4 (Record of Bills): A central record of any bills or written notifications of costs related to the matter associated with the joint account must be kept.

Crucially, although most specific client account rules are disapplied, the overarching SRA Principles, particularly the duty to safeguard client money and assets (Principle 7 and Code of Conduct for Solicitors, para 4.2), still apply. This means the firm must consider the risks involved.

Revision Tip (Joint Accounts)

Given the shared access nature of joint accounts, firms should consider implementing safeguards, such as requiring joint signatures for withdrawals, even if not explicitly mandated by Rule 9, to fulfill their duty to protect the funds.

Worked Example 1.1

A solicitor, Sarah, is appointed as a joint executor for an estate alongside the deceased's son, Ben. They open a joint bank account in both their names to receive estate funds and pay liabilities. Sarah ensures she receives duplicate bank statements every month. Ben suggests that, for convenience, they agree Sarah can make payments out of the account on her sole signature.

How should Sarah advise Ben regarding his suggestion?

Answer: Sarah should advise Ben against allowing sole signatory authority. While Rule 9 applies limited accounting rules, the solicitor's duty under SRA Principle 7 (acting in the best interests of the client/estate) and the Code of Conduct (safeguarding assets) remains. Allowing sole signatory access increases risk. A safer approach, reflecting best practice and safeguarding duties, would be to require joint signatures for all withdrawals from the joint executor account. Sarah must also ensure compliance with Rule 8.2 (obtaining statements) and 8.4 (record of bills).

Operating a Client's Own Account (Rule 10)

Solicitors may sometimes be authorised to operate a client's own bank or building society account as a signatory. This typically occurs under a power of attorney or as a Court of Protection deputy, where the client is unable to manage their own affairs.

Key Term: Signatory
An individual authorised to sign cheques or authorise transactions on a bank account, in this context, a solicitor operating an account held in the client's name.

As the account is in the client's name and the money is not held or received by the firm, it is not treated as client money within a firm's client account for the full purposes of the Rules. Rule 10.1 disapplies most of Rules 2–8, but mandates compliance with:

• Rule 8.2 (Statements): Obtaining statements at least every five weeks.
• Rule 8.3 (Reconciliations): Performing reconciliations between the bank statements and the firm's records of transactions conducted on the account at least every five weeks.
• Rule 8.4 (Record of Bills): Keeping a central record of any bills related to operating the account.

The SRA acknowledges that practical difficulties might sometimes prevent strict compliance (e.g., obtaining statements promptly). In such cases, the firm must demonstrate it has taken reasonable steps to ensure the client's money is not at risk and has recorded the situation. Again, the overarching duty to safeguard the client's assets is essential.

Exam Warning

Do not confuse operating a client's own account (Rule 10) with holding client money in the firm's client account (Rules 2-8). The applicable rules and responsibilities differ significantly. Rule 10 applies only when the solicitor is a signatory on an account in the client's name.

Third Party Managed Accounts (TPMAs) (Rule 11)

Firms may choose not to operate their own client account and instead use a Third Party Managed Account (TPMA) service. This involves an external, usually FCA-regulated, provider holding and managing funds related to client matters based on the firm's instructions.

Key Term: Third Party Managed Account (TPMA)
An account held with an authorised payment institution (regulated by the FCA) where client-related funds are managed by that third party, not the law firm itself, under agreed terms.

Because the firm does not hold or receive the money (the TPMA provider does), the money is not client money under the Rules, and Rules 2–8 do not apply. However, Rule 11 imposes specific obligations on the firm:

• Rule 11.1(a): The firm must ensure the arrangement does not result in the firm itself receiving or holding the money.
• Rule 11.1(b): Before use, the firm must take reasonable steps to ensure the client is informed of and understands the arrangement in writing, covering:
  • The contractual terms.
  • How fees for the TPMA service are paid and by whom.
  • The client's right to terminate the TPMA agreement and dispute payments.
• Rule 11.2: The firm must obtain regular statements from the TPMA provider and check they accurately reflect transactions.

The firm also retains its overriding duty to act in the client's best interests and to ensure the chosen TPMA arrangement adequately safeguards the client's money. This includes performing due diligence on the TPMA provider, checking they are appropriately regulated (e.g., by the FCA), and understanding the level of protection offered (which may differ from the protections under the SRA regime).

Worked Example 1.2

A small firm specialising in immigration law decides it does not want the compliance burden of running a client account. It engages 'SecurePay Services', an FCA-authorised payment institution, to act as a TPMA provider. A new client needs to pay a large Home Office application fee via the firm. The firm explains the TPMA system verbally and the client agrees. The firm instructs the client to pay the fee directly into the TPMA account managed by SecurePay Services.

Has the firm complied with its obligations under Rule 11?

Answer: No, the firm has likely not fully complied. While using a TPMA is permissible under Rule 11, Rule 11.1(b) requires the firm to take reasonable steps to ensure the client is informed of and understands the arrangements in writing before use. This includes details about fees, termination rights, and dispute rights. Simply explaining it verbally is insufficient. The firm must provide written details and ensure the client understands them before the TPMA is used for their funds. The firm must also comply with Rule 11.2 (obtaining statements) and its general duty to ensure the TPMA safeguards the client's funds.

Revision Tip (TPMAs)

Remember that although using a TPMA removes the need to comply with detailed client account rules (Rules 2-8), it introduces specific obligations under Rule 11 regarding client information, consent, and monitoring, alongside the general duty to safeguard client assets.

Key Point Checklist

This article has covered the following key knowledge points:

• Joint accounts (Rule 9) involve shared access and are subject only to limited Rules (8.2 - statements, 8.4 - bills record), but overriding safeguarding duties apply.
• Operating a client's own account as signatory (Rule 10) means the money is not held by the firm; Rules 8.2 (statements), 8.3 (reconciliations), and 8.4 (bills record) apply.
• Third-Party Managed Accounts (TPMAs) (Rule 11) involve outsourcing fund management; money is not client money under the Rules.
• Firms using TPMAs must ensure written informed client consent regarding terms, fees, and rights (Rule 11.1(b)).
• Firms must check TPMA provider regulation (usually FCA) and obtain regular statements (Rule 11.2).
• Overarching SRA Principles (acting in client's best interests, safeguarding assets) apply to all these account types.

Key Terms and Concepts

• Joint Account
• Signatory
• Third Party Managed Account (TPMA)