Joint accounts and third-party managed accounts - Operation of joint accounts

Learning Outcomes

This article explains the operation of joint accounts where a solicitor or firm holds or receives money jointly with a client or other third party. It outlines the limited application of the SRA Accounts Rules 2019 to such accounts, focusing on Rule 9. For the SQE1 assessments, you will need to understand the specific obligations that do apply, particularly regarding record-keeping and reconciliation, and distinguish joint accounts from client accounts. Your understanding will enable you to identify and apply the relevant legal rules and principles to SQE1-style single best answer MCQs concerning these specific account types.

SQE1 Syllabus

For SQE1, you are required to understand the specific regulatory requirements for operating joint accounts under the SRA Accounts Rules 2019. This involves distinguishing these accounts from client accounts and knowing which rules apply and which do not. It is likely that you will be required to identify the correct procedures or potential breaches relating to joint accounts in practical scenarios.

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

• The definition and nature of a joint account involving a solicitor/firm.
• The scope of SRA Accounts Rules 2019, Part 2, application to joint accounts (Rule 9.1).
• The specific requirements from Rule 8 that do apply (Rule 8.3 reconciliation, Rule 8.4 bills record).
• Practical implications and risks associated with operating joint accounts.
• Distinguishing joint accounts from client accounts and client's own accounts.

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. Under SRA Accounts Rules 2019, Rule 9, which part of the Rules generally does not apply to money held in a joint account?
   1. Part 1: General
   2. Part 2: Client money and client accounts
   3. Part 3: Interest
   4. Part 4: Accounting systems and records
2. A solicitor holds money in a joint account with an executor client. Which SRA Accounts Rule 2019 requirement relating to accounting records specifically applies to this joint account?
   1. Rule 8.1(a) (Separate client ledgers)
   2. Rule 8.1(c) (Client cash account)
   3. Rule 8.3 (Reconciliations)
   4. Rule 5.3 (Sufficient funds for withdrawal)

3. True or false? Money held in a joint account (operated by a solicitor and client) is not considered client money under the SRA Accounts Rules 2019.

4. A firm operates a joint account with a client. The client asks the firm to use funds from the joint account to pay the firm's outstanding fees for an unrelated matter for the same client. Which rule is most relevant to consider regarding this instruction?
   1. Rule 3.3 (Prohibition on providing banking facilities)
   2. Rule 5.1 (Circumstances for withdrawal from client account)
   3. Rule 7.1 (Accounting for interest)
   4. Rule 9.1 (Limited application of Part 2 to joint accounts)

Introduction

Solicitors and firms may sometimes hold or receive money jointly with a client or another third party. This often occurs when a solicitor acts as a co-trustee or co-executor alongside a lay person. The bank or building society account used in these situations is a Joint Account, distinct from the firm's main client account or its business accounts.

Understanding the specific regulatory framework for joint accounts is essential for compliance. The SRA Accounts Rules 2019 recognise the different nature of these accounts and apply a modified regime compared to standard client accounts held solely by the firm. This article examines the operation of joint accounts under Rule 9, focusing on the applicable duties and practical considerations for SQE1.

Key Term: Joint Account
A bank or building society account held in the joint names of a solicitor/firm and a client or third party, used for holding money related to a specific matter or trust where both parties have control or access.

Rule 9: Limited Application of Part 2

The core principle governing joint accounts is found in Rule 9.1 of the SRA Accounts Rules 2019. This rule states that Part 2 of the Rules (which covers the detailed requirements for client money and the operation of client accounts) does not generally apply to money held or received in a joint account.

This significantly differs from the requirements for a firm's general client account or separate designated client accounts, where Part 2 applies fully. Because the solicitor/firm does not have sole control over the funds in a joint account, many of the prescriptive rules designed to protect client money held by the firm are deemed inappropriate or impractical.

However, Rule 9.1 specifies that certain requirements from Rule 8 (Client accounting systems and controls) do still apply to joint accounts. These are critical for maintaining oversight and demonstrating proper stewardship, even with joint control.

Applicable Requirements under Rule 8

Despite the general exclusion of Part 2, solicitors and firms involved with joint accounts must comply with:

1. Rule 8.3 (Reconciliations): Firms must ensure that they carry out reconciliations between the joint account bank statements and the firm’s own records and/or the statements/records relating to the trust or estate for which the account is held. This must be done at least every five weeks. This provides an important check on the accuracy of transactions and balances, helping to identify any discrepancies or potential misuse promptly, even though the firm shares control. The reconciliation process helps verify that transactions align with the expected activity for the matter (eg, trust administration, estate distribution).

2. Rule 8.4 (Record of bills): Firms must keep a readily accessible central record of all bills or other written notifications of costs relating to work done for the matter associated with the joint account. This ensures transparency regarding the firm’s charges related to the joint matter.

These specific inclusions ensure a baseline level of financial control and record-keeping, even where the solicitor does not have sole signatory control.

Worked Example 1.1

A solicitor, acting as co-executor with the deceased's daughter, manages an estate via a joint bank account in both their names. The daughter instructs the solicitor to pay a personal debt of hers directly from the joint estate account. The solicitor checks the will, which does not authorise such a payment.

Should the solicitor comply with the instruction?

Answer: No. Although the solicitor shares control, the money in the joint account belongs to the estate and must be used for proper administration purposes (paying debts, expenses, distributing to beneficiaries). Paying the daughter's personal debt would be a misuse of estate funds and likely a breach of the solicitor's fiduciary duties as executor, regardless of the limited application of the SRA Accounts Rules Part 2 to the joint account itself. The solicitor must refuse the instruction.

Practical Operation and Risks

While Rule 9 simplifies the direct application of many Accounts Rules, operating a joint account requires careful management due to shared control.

• Control: The defining feature is that the solicitor/firm does not have sole control. The other party (client, co-trustee, etc.) typically also has signatory rights.
• Risk: This shared control presents risks. The other signatory could potentially make unauthorised withdrawals. While the solicitor might not be directly liable under Rule 5.3 (sufficient funds) for the co-signatory's actions on the joint account itself (as Part 2 doesn't apply), they retain overarching professional duties.
• Safeguarding: Principle 7 (acting in the best interests of clients) and the SRA Code of Conduct obligation to safeguard client money and assets still apply broadly. Good practice often involves agreeing clear mandates for the account's operation and potentially requiring joint signatures for significant withdrawals to mitigate risks.
• Distinction: It is important to distinguish a joint account under Rule 9 from a standard client account (Rule 13) or a client's own account operated by the solicitor (Rule 10), which have different regulatory requirements.

Exam Warning

Do not confuse a joint account (Rule 9) with a client's own account operated by the solicitor (Rule 10). Rule 10 applies when the solicitor is a signatory on an account in the client's name. Rule 9 applies when the account is in the joint names of the solicitor/firm and another party. The applicable rules differ significantly, particularly regarding reconciliation requirements (Rule 8.3 applies to both, but other Part 2 rules are excluded differently).

Revision Tip

For SQE1, focus on the exceptions stipulated in Rule 9.1. Know which specific Rule 8 requirements (reconciliation and record of bills) apply to joint accounts, and understand why most of Part 2 (client money rules) does not apply (due to shared control). Be ready to identify scenarios involving joint accounts and apply the correct, limited regulatory framework.

Key Point Checklist

This article has covered the following key knowledge points:

• Joint accounts are bank/building society accounts held in the joint names of a solicitor/firm and a client or third party.
• SRA Accounts Rules 2019, Part 2 (Client money and client accounts) generally do not apply to money held in joint accounts (Rule 9.1).
• However, specific requirements from Rule 8 do apply: Rule 8.3 (reconciliations at least every five weeks) and Rule 8.4 (central record of bills).
• Operating joint accounts involves shared control, presenting unique risks that require careful management despite the reduced scope of direct Rules application.
• It is essential to distinguish joint accounts (Rule 9) from client accounts (Rule 13) and client's own accounts operated by the solicitor (Rule 10).

Key Terms and Concepts

• Joint Account