Money upfront: Solicitors and clients could lose out with rule change
Solicitors Regulation Authority (SRA) plans to stop law firms taking money for costs in advance of work being done could harm those working on fixed fees, the Law Society has warned.
Responding to a consultation on the first changes to the Standards and Regulations since they were introduced in November 2019, the society also opposed a change on the pro bono rules.
The SRA put forward seven “small” amendments, the first of which was making it clear that, in order to transfer funds from client account into the firm’s business account, the bill, or other written notification of costs, must be for costs that have already been incurred, and not in advance of the work being done.
In its response, the Law Society said this was not a minor change and there was no evidence of problems arising under the existing rules.
It highlighted the value of fixed costs to both client and solicitor, arguing that removing the ability to take them in advance, with client consent, would undermine this.
“We are aware of several firms, particularly high street practices, which legitimately operate in this way. This approach lowers risk on both sides…
“The result may be poorer value for clients who may pay more for a case if charged by the hour, and may have adverse economic effects on solicitors’ firms.”
Chancery Lane suggested that this was “not what the SRA intended”, noting that the SRA’s own guidance stated that a bill to a client for their anticipated fees and disbursements “does not mean that this money is no longer a client’s money and it does not need to be safeguarded because it does not sit in a client account”.
The response went on: “Indeed, there are already safeguards in place within the rules that provide that, if there are alternative arrangements to client money being paid into a firm’s client account, this must be explained and the client properly informed of the risks before being agreed with the client in writing.
“There is the added safeguard of the firm’s reporting accountant being likely to qualify their report if they are of the view that such money, belonging to a client is, has been or may be, placed at risk.”
The response also opposed removal of the requirement that solicitors providing pro bono services outside a firm or organisation have to notify the SRA.
It said: “We consider that the requirement to notify the SRA is not onerous and protects both the public and the individual solicitor.
“We do not consider that it would deter a solicitor from providing pro bono services but would, in fact, assist the SRA to keep abreast of the activities of those it regulates.
“Furthermore, there is concern that removing this requirement might give people licence to act beyond the areas of their expertise, which would be a risk to the public and damaging to the reputation of the profession.”
Another amendment is to allow solicitors to administer oaths or statutory declarations outside their normal practice without regarding them as freelance solicitors.
The Law Society said it supported this but cautioned about the danger of solicitors not realising they required their own professional indemnity insurance.
“Alternatively, are the SRA suggesting that insurance cover is not required for this type of activity as solicitors will not take out insurance for ad hoc administration of oaths? Even if such insurance
were available, it is likely to defeat the objective of the proposed amendment.
“The SRA needs to reconsider and provide greater clarity on this if it is to achieve the intended outcome.”
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