Joint accounts and third-party managed accounts - Operation ...

Learning Outcomes

This article explores the regulatory requirements and compliance considerations for joint accounts, client’s own accounts, and third‑party managed accounts (TPMAs), including:

• Disapplication of most Rules 2–8 under Rules 9 (joint accounts) and 10 (client’s own account), and residual accounting‑record duties
• Five‑weekly cycle: bank/building society statements (Rule 8.2) for joint accounts and client’s own accounts, and reconciliations (Rule 8.3) for client’s own accounts
• Practical meaning of acting in the client’s best interests and safeguarding money and assets where funds are not held in a firm client account
• Application of Rule 7 interest and alternative interest treatment for Rules 9 and 10 situations
• Use of TPMAs under Rule 11: client information in writing, provider due diligence, statement checking, and ensuring the firm does not receive or hold funds
• Red flags indicating a prohibited banking facility risk or misuse of alternative account arrangements, and practical safeguards and documentation

SQE1 Syllabus

For SQE1, you are required to understand the limited application of the SRA Accounts Rules 2019 (the Rules) when dealing with money outside the firm's client account, to distinguish the specific requirements for joint accounts, client's own accounts, and TPMAs, and to recognise the overarching professional conduct duties that still apply, with a focus on the following syllabus points:

• 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.

In these settings:

• the firm is often not “holding” the funds in a client account under Rules 2–8, yet still owes duties under the SRA Principles (notably acting in each client’s best interests) and Code of Conduct duties to safeguard money and assets
• the detailed machinery of the Accounts Rules (for example, Rule 7 interest, Rule 5 withdrawals, and Rule 4 segregation) is largely disapplied for joint accounts and client’s own accounts, but limited record‑keeping duties persist
• using a TPMA means the firm does not hold client money at all; the provider does, but the firm must meet specific Rule 11 obligations and must maintain appropriate oversight.

Across all three arrangements, clear written terms, robust internal records, and proportionate controls are key to prevent misuse or loss and to meet professional standards.

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.

Two practical points follow from this structure:

• Rule 7 (interest) does not apply to joint accounts. Interest arrangements are usually governed by the bank’s terms and the legal/joint mandate. If the joint account is for an estate or trust administration, consider what is fair or required by law or the governing instrument; do not apply the firm’s client‑account interest policy.
• Although not mandated, periodic internal checks against the statements are good practice to evidence the firm has taken steps to safeguard funds under the SRA Principles and Codes.

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.

Appropriate use cases include:

• co-executors opening a joint account to collect estate assets and pay estate liabilities
• trustees (including a professional trustee) operating a joint account with a co‑trustee to administer trust funds where a joint mandate is preferred.

Avoid using a joint account to facilitate unrelated payments for convenience (for example, personal bills of an executor or beneficiary) that are not part of the legal matter. While Rule 3.3’s prohibition on using a client account as a banking facility addresses client accounts, the risk of misuse exists with joint accounts too. The firm must not become a conduit for banking services unrelated to legal work.

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.

Document the decision to use a joint account in the matter file, including:

• why a joint account is appropriate and in the client’s best interests
• how the mandate works (for example, joint signatures)
• who receives statements (ensure the firm receives them at least every five weeks) and who will review them
• what payments are permitted and how they relate to the legal matter.

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).

Worked Example 1.2

Two executors (one is the acting solicitor) hold an estate’s funds in a joint account. The family asks the solicitor to pay the adult grandchild’s university rent from the joint account “as a favour,” pending the estate final account.

Should the solicitor agree?

Answer:
No. Payments from the joint executor account should be limited to proper estate expenses or distributions made in accordance with the will/intestacy and the executors’ duties. Paying a beneficiary’s unrelated personal liability from the joint account risks misuse of estate funds and may compromise the solicitor’s duty to safeguard assets. The firm should explain why the request cannot be met and, where appropriate, proceed to a proper distribution or interim distribution that is justified by the estate position and executor duties.

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.

Key Term: Power of Attorney
A legal instrument authorising a person (the attorney) to make decisions and take actions on behalf of another. For financial affairs this is typically an ordinary power (short‑term authority while the donor has capacity) or a lasting power of attorney for property and financial affairs (which can continue after loss of capacity if properly registered).

Key Term: Court of Protection deputy
An individual appointed by the Court of Protection to make financial or welfare decisions for a person lacking mental capacity. A property and financial affairs deputy may operate the person’s own bank accounts and pay their liabilities in the person’s best interests.

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.

In practice:

• maintain a ledger for the client’s own account activity, recording each payment/receipt you initiate or oversee, and reconcile this ledger to the bank statements every five weeks
• keep written authority (power of attorney or court order) on file, and ensure all actions fall within that authority and are in the client’s best interests
• ensure any fees charged for operating the account are transparently notified in writing and recorded centrally under Rule 8.4; where fees are paid from the client’s own account, be certain there is authority and a clear costs basis.

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. If the account is later closed and a residual balance is paid to the firm to hold, those monies then become client money and the full client account regime applies.

Interest and Rule 10: Rule 7 does not apply. Interest accrues in the client’s own account under the bank’s terms and belongs to the client; there is no obligation to apply the firm’s interest policy because the funds are not in a client account.

Key safeguards when operating a client’s own account:

• document the scope of authority and the decision-making process (best interests, necessity, affordability, and purpose of each payment)
• separate duties (where possible) between the fee-earner authorising payments and another person conducting periodic reviews
• diarise the five‑weekly statement/reconciliation cycle and maintain evidence of follow‑up if statements are delayed
• ensure payments made are proper liabilities of the client (for example, care fees, utilities, and living expenses), and avoid paying others’ liabilities unless authorised and in the client’s best interests.

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.

Worked Example 1.3

A solicitor is acting as a Court of Protection deputy and operating the protected person’s own current account. Statements arrive irregularly and there is a backlog, making a five‑weekly reconciliation impossible this cycle. The care home fee is due and funds are sufficient.

How should the solicitor proceed to remain compliant?

Answer:
The deputy may pay the care fees (a proper liability) from the client’s own account. They should contemporaneously record the steps taken to obtain statements, explain why a five‑weekly reconciliation cannot be completed, and document why the funds are not at risk (for example, confirmed balance via telephone banking or online snapshot). They must continue efforts to obtain statements and complete the reconciliation as soon as practicable. They must also maintain the central record of bills (Rule 8.4) for any charges made for operating the account.

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 with the TPMA provider
  • how fees for the TPMA service are paid and by whom
  • the client’s right to terminate the TPMA agreement and dispute payments or releases.
• Rule 11.2: The firm must obtain regular statements from the TPMA provider and check they accurately reflect transactions.

In addition, sound practice includes:

• conducting due diligence on the TPMA provider, including verifying current FCA authorisation and the provider’s protections and safeguarding arrangements
• understanding how interest is treated on TPMA balances (it is governed by the provider’s terms rather than Rule 7)
• keeping sufficient internal records to reconcile TPMA statements to the firm’s matter records
• notifying the SRA that the firm is using TPMAs (completion of the SRA’s TPMA notification requirements when first used, as per current regulatory guidance).

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).

Appropriate use cases include:

• firms that rarely need to hold client funds and prefer to avoid operating a client account
• scenarios where a dedicated, segregated flow of funds with in‑built third‑party controls reduces cyber and operational risk.

Misuse to avoid regulatory obligations or to achieve convenience (for example, routing non‑matter related funds) is inappropriate and may attract regulatory scrutiny.

Worked Example 1.4

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.

Worked Example 1.5

A firm uses a TPMA for conveyancing completions. The TPMA statement shows a £5,000 release to a third party that the fee‑earner does not recognise. The client queries the payment.

What should the firm do?

Answer:
The firm should promptly investigate, check internal instructions and the matter trail against the TPMA statement, and contact the TPMA provider to verify the release instruction and audit trail. If the payment was unauthorised, the firm must take steps under the TPMA dispute and reversal mechanisms, notify the client, and consider notifying the SRA if client funds are at risk. The firm should also review internal controls, including who is permitted to authorise TPMA releases and how statements are checked, to prevent recurrence.

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.
• For joint accounts, Rule 7 interest is disapplied; interest treatment follows the account terms and the governing legal framework of the matter.
• 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.
• When operating a client’s own account, maintain five‑weekly reconciliations where practicable, record any delays and the steps taken to ensure funds are not at risk, and keep the authority (power of attorney or court order) on file.
• 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)) and must obtain and review provider statements regularly (Rule 11.2).
• Always conduct and document provider due diligence for TPMAs, including verification of FCA regulation and clarity on safeguarding and interest arrangements; notify the SRA when first using a TPMA in line with current guidance.
• Across all three arrangements, the SRA Principles and Codes still apply: act in the client’s best interests, safeguard money and assets, and avoid using any arrangement to provide a banking facility unrelated to the delivery of regulated services.
• If funds from a client’s own account later come to be held by the firm (for example, upon account closure), they become client money and the general client account rules re‑engage.

Key Terms and Concepts

• Joint Account
• Signatory
• Power of Attorney
• Court of Protection deputy
• Third Party Managed Account (TPMA)