Fees: Firms need to act in best interests of clients
Amendments to the Standards & Regulations (STaRs) will not stop law firms invoicing clients in advance and transferring the money into their office accounts, the Solicitors Regulation Authority (SRA) has said.
The SRA also confirmed it would go ahead with removing the requirement that solicitors providing pro bono services outside law firms or organisations have to notify their regulator.
Late last year, the regulator issued a consultation on the first changes to the STaRs since they were introduced in November 2019.
One amendment was to make it clear that, in order to transfer funds from client account into the firm’s business account, the bill must be for costs that have already been incurred, and not in advance of the work being done.
The Law Society argued that this could harm firms offering fixed fees.
But in a paper for its most recent board meeting, the SRA said its intention was to clarify that money held or received for costs not yet incurred was client money.
“The proposed amendments do not prevent firms invoicing clients in advance of work being completed and transferring this money into their office account.
“Our guidance makes it clear that this is permissible under the accounts rules as long as firms are complying with our requirements, including acting in the best interests of their client.
“We will make sure this is clearly explained in our consultation response, alongside reiterating our requirements around how freelancers hold client money.”
The society opposed the proposal to remove the requirement that solicitors providing pro bono services outside a law firm or organisation notify the SRA. The society said this was “not onerous” and would help the SRA “keep abreast of the activities of those it regulates”.
However, the SRA said that “both before and as part of the consultation we were told that the requirement is a barrier to some solicitors offering pro bono services”.
It continued: “We have not identified any risks arising from the removal of this notification requirement. We therefore recommend that we proceed with this amendment.”
The SRA said the rule changes that caused “the most concern” related to law firms operating client accounts after the appointment of a solicitor as deputy or attorney.
The proposal was described as “burdensome and, in some cases, impossible to comply with, but also that the requirements did not go far enough in protecting consumers”, with the Legal Services Consumer Panel (LSCP) noting many consumers involved were likely to be vulnerable.
“Others raised concern about the impact of the proposal in relation to deputyships and the role already played in this area by the Office of the Public Guardian.”
The SRA went on: “We have reflected on the feedback carefully. Noting the very small number of concerns of consumer detriment where a solicitor operates a client’s own account, we recommend that we align our new rules more closely with the current guidance.”
The regulator said most respondents supported the addition of a new rule making it clear there was no need to deliver a bill or other written notification of costs before moving money from client account, in full or partial reimbursement of money spent by the firm for that client.
The SRA said the LSCP “raised concerns that in a prolonged matter”, a written notification of costs was important to ensure clients were kept informed, while an accountancy firm “raised concerns that the new rule will cause confusion in the profession and reverse some good practice”
However, the regulator said the STaRs and guidance made clear that firms must ensure clients received “the best possible information about how their money will be used or is being used” and this meant “being clear about any funds that are being paid over on their behalf and for which they will be liable to the firm”.
A further rule change, which received “overwhelming support” from all the respondents apart from one law firm, would allow solicitors to “administer oaths or statutory declarations outside their normal practice” without being regarded as freelance solicitors.
The consultation received 25 responses.
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