In collaboration with Paragon, The Strategic Partner, a regulation and compliance specialist, has produced this article examining the warning notice issued by the Solicitors Regulation Authority (SRA) regarding client account shortages.
A recent warning notice from the SRA reminds firms of the need to promptly rectify any shortages in client accounts as soon as they are discovered. Client account shortages can arise from various reasons, including administrative errors, cyber-attacks, or, in rare cases, employee dishonesty. Regardless of the cause, firms must comply with their regulatory obligations to replace any missing funds immediately to safeguard client interests.
The new warning notice from the SRA highlights the potential risks to solicitors and clients if shortages are not addressed quickly. Firms must fully inform clients looking to deposit money into already deficient accounts of the situation.
Furthermore, the regulator has emphasised its expectation that firms ‘make good’ on any deficit or losses from a client account, including cases where this has resulted from cybercrime and not just due to technical or human error.
Paul Philip, SRA Chief Executive, reinforced the importance of this directive, stating:
“Case law is very clear that the client account is sacrosanct. However, firms do report shortages on the client account for a variety of reasons.
“Our rules are also very clear – you must make good on any deficit promptly. A shortage on the client account presents a risk to all clients for whom you hold money.
“Ultimately, solicitors have a trusted position when they hold client money, and it is in the best interests of every solicitor to maintain that trust.”
The warning notice also advises firms to establish clear processes for regularly verifying client account balances and to be mindful of other obligations, such as notifying insurers if discrepancies are found.
For further information, read the full article here: Client Account Shortage.
Read the full warning notice here: Client Account Shortage Warning Notice.
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This article has been written by David Green of The Strategic Partner. If you have any questions about The Strategic Partner, Paragon, or any of the issues raised in this article, please do not hesitate to get in touch.
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[1] SI2008/1277, as amended by the Consumer Protection (Amendment) Regulations 2014 (SI 2014/870).
This article is published without responsibility on the part of the author or publishers for any loss occasioned by any person acting or refraining from action as a result of any views expressed in the article. Specific risk management advice requires detailed knowledge and analysis of each firm and practice area facts relating to the risk. The information included in this article cannot and does not attempt to satisfy this requirement for any of its readers.