Solicitors’ accounts is a topic that many SQE1 candidates under-prepare for, assuming it will be straightforward. In practice, it is one of the most rule-specific and detail-dependent subjects in FLK2. Questions test both conceptual understanding of the SRA Accounts Rules and the ability to apply those rules to specific transactions. This guide covers the framework you need.
The SRA Accounts Rules: The Core Principle
The overarching principle is simple: client money must be kept separate from the firm’s money. The SRA Accounts Rules exist to protect clients and third parties whose money law firms hold in the course of practice.
What Is Client Money?
Client money is money that a solicitor holds or receives for or on behalf of a client or third party in connection with the firm’s legal services. It includes money received as a deposit in a conveyancing transaction, money held pending completion, money received to pay a court fee, and damages received on a client’s behalf.
It does not include money received as payment for the firm’s own fees (except where held in anticipation of billing), or money that belongs to the firm.
A firm’s own fees and disbursements that have already been billed should be transferred from the client account to the office account promptly. Allowing billed fees to sit in the client account is a breach of the Rules.
The Client Account
Client money must be held in a client account — a separate bank account maintained at an authorised bank, clearly designated as a client account. The firm must not mix client money with its own funds (office money). This separation is the cornerstone of the Rules.
Key operational rules:
- Client money received must be paid into the client account promptly — usually on the same day or the next working day.
- Money should only be withdrawn from client account to pay the client, to pay a third party on the client’s behalf, or to transfer to office account once fees have been properly incurred.
- You must not withdraw money from client account to pay your own fees unless a bill has been delivered or the client has specifically authorised it.
Interest on Client Money
A firm must account to the client for a fair sum of interest earned on client money unless the amount is too small to be worth accounting for, or the client has agreed otherwise. The Rules do not prescribe a fixed rate — the obligation is to pay a “fair sum.”
- Interest should normally be calculated from when client money is received to when it is paid out.
- Client money held on a designated deposit account earns interest for that client directly.
Common SQE1 Exam Scenarios
Exam questions on solicitors’ accounts typically ask whether a specific transaction has been handled correctly. Common scenarios include:
- A solicitor receives a cheque payable to the client — should it go to client account?
- A firm uses client money to pay its own office expenses — is this a breach?
- A client leaves funds on account for months after a matter closes — what obligation does the firm have?
Accountants’ Reports and Compliance
Firms must maintain proper accounting records and reconcile client account balances monthly. An annual accountant’s report must be submitted to the SRA if the firm holds client money above a de minimis threshold, unless the firm opts into the SRA’s alternative regime.
Practise This Topic on Sqewise
Solicitors’ accounts is a topic where precision matters — small misunderstandings translate directly into lost marks. Practise SQE1 accounts questions on Sqewise and track where you need more work on the progress dashboard. For full syllabus coverage, see our SQE1 topics page.