B6: Accounts, Accounts Certificates, Professional Practice & Guarantee Fund
Effective from the date of publication on 14 June 2024.
Part I - General
Cashroom Managers remain responsible for Accounts Rules compliance whatever method they use to achieve that compliance.
Cashroom Managers should pay particular attention to Rules B6.13.- B6.13.3 which set out the roles and responsibilities of Cashroom Managers.
Part II - Accounts Rules
Client's money to be paid into client account or holding ledger
Rule 6.3.1(a)
A client account is a bank or building society account as defined in Rule 6.1.1, in the name of the practice unit which is set up to hold Client’s Money. A client account should be named according to the definition at Rule 6.1.1 by including within the account title, the words “client”, “trustee”, “trust” or another fiduciary term. This will make clear that the account is not an account holding firm money and will assist the identification of client accounts by the Society’s inspection staff or in the event of an intervention to secure and protect any client accounts and funds.
Rule 6.3.1(b)
Do I have to keep all my client funds in the client bank account?
Yes. You must always have sufficient funds in the client bank account to cover all of the client credit balances. If you do not have sufficient funds the practice unit will be in deficit and in breach of Rule 6.3.
Can I offset sums due by clients to me?
Offsetting sums due to you can only be done where you have the legal right to offset for sums due to/by the same client.
How should outlays recovered from SLAB be treated?
Outlays recovered from SLAB but not yet paid out by the practice unit are deemed to be Client’s money and must be held in a client bank account.
What if I don’t have a client bank account?
SLAB funds can be paid into the firm bank account, but any outlays reimbursed by SLAB must have either been settled prior to or at the latest on the date of receipt from SLAB.
Can I take a payment to account of fees?
Payment as an advance towards fees cannot be held in the firm bank account. Therefore, payment as an advance towards fees is deemed to be Client’s money and must be held in a client bank account until work has been completed and the fee note rendered.
What is the position regarding instruction fees?
Fixed fees to be charged by Practice Units may be considered as instruction fees.
It is accepted that instruction fees are not “time dependent”, and the sum of the fixed fee to be charged would be for the work required in respect of the entire matter or such defined part covered by the fee, and that such fee would be payable upon a Practice Unit being instructed in that regard.
The Practice Unit must ensure that the Terms of Business issued to the client and the accompanying fee note is strictly clear on these points, with all relevant wording included so that the client is fully aware at the outset what the fee represents, and that this is an “instruction fee” payable upon instructing the Practice Unit to act on their behalf.
The relevant Accounts Rules will still require to be adhered to:
- Rule B6.5 – Ensuring that the fee note has been rendered to the client timeously, outwith the Practice Unit, and before any payment is received.
- Rule B6.3 – That “client funds” cannot be held in the firm bank account, which would occur if a payment was received, but where no fee note (or Terms of Business) had been issued to the client clearly stating the terms of the fixed fee payable.
If you wish to discuss any aspect of charging and/or recovering fees from your client please contact the Society’s Financial Compliance department.
What do I do if I know the practice unit is in deficit?
If there are insufficient funds in the client bank account to cover all the correct credit balances, sufficient funds must be introduced without delay. All rule breaches are to be disclosed on the next Accounts Certificate. If sufficient funds cannot be introduced, meaning the deficit cannot be rectified and is ongoing, please report this to the Financial Compliance Department immediately.
What do I do if there has been an external cyber fraud on the client account?
The client account may be in deficit as a result of external cyber fraud on the client account.
In all such cases, the practice unit should promptly report the matter to law enforcement and their banks. The ability to stop and recover stolen funds within the banking system will be improved if law enforcement and the banks are made aware of the fraud as soon as possible. Practice units should contact the Master Policy insurer where an insurance claim is a possibility.
Where the deficit cannot be immediately rectified by the practice unit, the practice unit should also contact the Law Society of Scotland Financial Compliance Department. All cases will be considered on their merits but the Law Society of Scotland may consider allowing the practice unit to continue to operate without immediately rectifying the deficit to allow time for recoveries to be returned to the client account and to allow insurers to complete their investigations and confirm if they will make a payment to clear the deficit. The Financial Compliance Department may consult with the Client Protection Sub-Committee to make them aware of the situation and to seek their views on the approach to be taken.
In all cases, Practice Units should take steps to ensure that their IT infrastructure has not been corrupted by the fraudsters’ activities.
You may wish to consider how you will accept an instruction, (including a change of instruction) about where funds are to be paid. For example, you may decide as a practice that you will never accept instructions via email or that you will only accept instructions if they have been confirmed independently, for example via email and in person.
Rule 6.3.1(c)
When do the accounts rules require me to pay money into a client account?
Any funds received which do not belong to the solicitor must be paid into a client account without delay. This normally means on the same day.
Rule 6.3.1(d)
When do I use the holding ledger?
When electronic transfers are to be held as undelivered pending settlement of a sale transaction. When settlement has been agreed, the funds can then be credited to the ledger of the seller.
Can this account be used for other purposes?
No, for example it cannot be used for unknown receipts or funds requiring further investigation.
Why are electronic transfers to be held as undelivered pending settlement of the transaction?
The solicitor cannot credit the client ledger of the seller until settlement has been agreed.
Rule 6.3.3(c), 6.7.1 & 6.19.1 & 2
Can I arrange bridging or other loan accounts on behalf of clients?
Yes - provided you have written authority from the client and made disclosure of the client details to the lender. You must record the outstanding balance and reconcile it on a monthly basis with a bank statement to the same date. Closing statements must be obtained following repayment of the outstanding sum.
See further guidance provided under 6.19.
What do I do if funds are credited to my client account in error?
We would refer you to section 5.6.3.6 of the Legal Sector Affinity Group (LSAG) Anti-Money Laundering Guidance for the Legal Sector, a link to which can be found here:
lsag-aml-guidance-for-the-legal-sector-220323-14.pdf (lawscot.org.uk)
The Guidance confirms that you should give consideration to the possibility that any unsolicited payment or unexpected overpayment may have been engineered for the purposes of money laundering and treat these instances appropriately. You should contact our AML Team for further guidance on specific issues relating to unknown or unexpected funds credited to your client.
Duty to rectify breaches
Rule 6.4.1
Prompt action is required under this rule to rectify any accounts rules breaches which are discovered. This applies to breaches identified in any way including the practice unit's own review work, disclosures on Accounts Certificates, and Law Society of Scotland inspections.
Can I arrange to pay my own money into the client bank account?
Rectifying a breach can include introducing your own money to the client account to cover any deficit identified. Many solicitors also hold a float or surplus money in the client bank account. These funds are usually held to take care of minor mistakes on the solicitor's part i.e. paying outlays for clients who have not yet put them in funds. Using such a surplus as a routine source of funding for clients' outlays has sometimes led to unintended shortages.
It is not anticipated that surpluses held will be very large or be sufficient to eg: rectify large errors or the impact of large scale fraudulent activity which may result in the loss of whole loans funds, sale proceeds etc. These are extremely unusual events and it is disproportionate to hold large amounts of non-client money in a client account to minimise their possible impact. Practice units should address this risk by ensuring that they are ready to take prompt action to rectify errors (eg: by contacting banks, other firms, insurers and law enforcement.) Holding large amounts of personal money as a client account surplus is also likely to be a breach of Rule B6.5.3 (see below) which prevents the use of a client account as a personal banking facility by managers (& others) of the practice unit. Holding very large levels of cash belonging to a manager (in the client account) of the practice unit is likely to be deemed to be an example of using the client account to hold money for personal purposes which are unrelated to any client service being provided by the practice unit.
Drawings from client account
6.5.1
If I am carrying out an inter-client transfer, what do I have to do?
Always remember the prohibition on using one client's money for the benefit of another client. This is only allowed if it is authorised in writing. The fact that the accounts rules allow such payments if authorised in writing should not result in the practice unit overlooking the potential conflict of interest in such a transaction.
Remember that all inter-client transfers must be separately recorded under the terms of Rule 6.7.1
Rule 6.5.1
What monies can be paid from the client bank account without the client's specific written authority?
Any sums due to be paid on behalf of the client where an account has been submitted to the solicitor for work instructed on behalf of a client or for a debt due to the solicitor where the client has received an accounting, or to transfer money into the named client bank account to be held for the client or money paid in by the solicitor including sums paid into the account in error.
Rule 6.5.1(c)
I see the rule refers to money drawn on a client's authority. Does this have to be in writing?
Although the authority can be oral, confirmation should be obtained to vouch that authority has been obtained. If questions are raised by the client at a later date, you will need this written authority to rely on.
If you have concerns about the authenticity of the instruction you’ve received, whether via email, telephone, fax, or in some other way, you should confirm your instruction via a separate method. The risk arising from payment to the wrong party always remains with the practice unit.
How do I ensure that I am complying with lender instructions when the lender is a client?
All instruction of lenders must be followed. These may be stated within the offer of loan, by letter, within the UK Finance Lenders’ Handbook (both parts where applicable), Building Society Association handbook, or in any other form.
Financial Compliance inspections and the Client Protection Sub Committee will pay particular attention to compliance with lender handbook sections which are focused on reducing the risk of fraud. This includes provisions which require solicitors to disclose key facts which lenders should be aware of when making their lending decisions. Solicitors must ensure that they maintain their knowledge of the relevant lender handbooks when they are updated.
Rule 6.5.1(d)
Does this rule mean that I can take fees from a client account?
Yes - provided the solicitor has carried out the work and raised a note of fees due and rendered it to the client. The amount of the fee should be charged to the client ledger and then an equivalent sum of money can be transferred to the practice unit's account.
Fees cannot be taken from loan funds held for settlement as this money is only to be used in payment towards the price of property.
How is a fee justified?
Any solicitor seeking to take a fee from a client balance must be able to justify the work carried out and demonstrate the nature and extent of that work. The solicitor must be able to show when the work was carried out and that it was carried out with the authority of, and on the instruction of, the client. It must be possible to identify the fee earners who carried out the work and a record of this should be maintained on the file. The fee note itself should identify the work done, the matter to which it relates, and the fee being charged. It is also expected that a solicitor will be able to produce some form of documentary evidence (for example a paper file or electronic database) to demonstrate the work carried out and which supports the taking of a fee from a client balance.
What happens if a client's address is unknown, after the work is completed, but before the fee note is rendered?
An investigation must be carried out to trace the client and reasonable endeavours must be used to trace the client, details of which should be retained on file. If the client's new address can be ascertained, then the fee note (in relation to a fee that can be justified) can be rendered to the new address and the fee can be taken from the client balance. If the client cannot be traced, despite reasonable endeavours being made, then it may be possible to send out the fee note to the client's last known address, and fees taken where the fee can be justified. In that connection, however, the solicitor sending out the fee note must be acting with the utmost good faith, and the fee note itself could still be challenged by the client if the client subsequently becomes aware of it and disagrees with it. Furthermore, it is good professional practice to render a fee note as soon as possible after the work is completed, to minimise the risk of this situation occurring.
Can a fee be taken more than 5 years after the work that it relates to has been completed?
Solicitors are directed to the terms of the Prescription and Limitation (Scotland) Act 1973, Section 6 and Schedules 1 and 2, which determines the conditions where the 5-year prescriptive period in respect of an obligation arising from a contract (i.e., for legal services) applies.
Rule 6.5.1 (g)
Solicitors may hold non-client money in a client account usually in the form of a surplus, which is not client money. This rule makes clear that the withdrawal of non-client money is one of the acceptable drawings from client money.
Rule 6.5.2/6.5.3
Both of these rules aim to reduce risk to client accounts by ensuring that the uses of client accounts are restricted in line with their intended purpose – to serve clients. Rule 6.5.2 aims to reduce risk to client accounts by requiring that all drawings from a client account are in respect of/for the purpose of legal services provided to a client. Client account activity would therefore be expected to be that which is represented by the “ordinary business of a Scottish solicitor” when serving their clients.
As an example, if a client asked you to e.g.: pay free proceeds from their funds to a third party who had no relation to the transaction it would be unlikely that this payment would be deemed to be for the purpose of providing legal services to the client and the payment would represent a breach of the rule.
Similarly Rule 6.5.3 reduces risk to client accounts by preventing the use of the client account as a personal banking facility by managers/employees of the practice unit and by anyone closely connected to managers/employees of the practice unit. As an example, it would be a breach of this rule to allow a relative of a manager to use a client account to hold, receive and disburse their money for personal purposes which are unrelated to any client service being provided by the practice unit.
Rule 6.5.4
How should a cheque to a bank or building society be designated?
You should ensure that the name of the person whose account is being credited is shown as part of the payee information on the payee line of the cheque. The account number may also be shown, however this is not a requirement of the rule.
Exceptions from Rule 6.3
Rule 6.6.1
What should I do if I find that I have received funds which are not to be lodged in the general client account but are to be paid onwards to the client or a third party on the same day?
It is necessary to record the receipt and payment of the funds as a cross entry on the client's ledger account. This discloses the whole sequence of financial dealings on behalf of a client on the ledger card.
Accounts to be kept in books of a solicitor
Rule 6.7.1 - 6.7.2
The rule requires solicitors to keep "properly written accounting records as are necessary" at all times. What does this mean in practice?
Solicitors should refer to Rule 6.1.1 for the definitions of Accounting Records which should be kept and the durable medium on which they should be stored.
All transactions carried out by the practice unit must be recorded correctly in the books of the practice unit, and the books must be kept up to date. This generally means on a daily basis. The practice unit should ensure that it is able to comply with this rule during periods of staff holidays or illness or periods when outsourced providers of cashroom services will be unavailable.
Rule 6.7.1(v) makes clear that the requirement for the practice unit to maintain comprehensive accounting records applies to any funds received into a practice unit bank account on behalf of a client. As an example, this requires comprehensive accounting records to be maintained where funds are received from the Scottish Legal Aid Board on behalf of a client.
Rule 6.7.2(a) & (b)
What is meant by the "true financial position" and how can this be shown?
The true financial position of a practice unit is defined at Rule 6.1.1 as:
“the accurate net financial position of the practice unit at each month end reflecting complete and accurate figures for all material assets and liabilities of the practice unit”
This definition therefore requires that a practice unit will carry out a process at the end of each month to update its accounting records to reflect all material accounting movements in the past month. This position after each month-end will be reflected in an updated trial balance.
Rule 6.7.2 requires a practice unit to keep sufficient accounting records necessary to show an accurate true financial position. The rule requires that complete and accurate figures for all material assets and liabilities of a practice unit are reflected at each month end. This ensures that an accurate picture of income and expenditure, the net asset/liability position and the working capital position will be apparent to any user of the accounts.
Solicitors may wish to take advice from their accountants to ensure that the practice unit is in a position to comply with this rule.
All income and expenditure ledgers including partners’ drawings must be cleared down at the end of the financial year.
How quickly would I be expected to make available my accounting records?
Rule 6.7.1 requires client accounting records to be "properly written up" at all times, the accounting records should therefore be available immediately. Rule 6.1.1 defines the "durable medium" on which accounting records may be stored and notes that printouts from such a medium must be immediately available.
It is therefore vital that the books of the practice unit are held by the practice unit. If the cashroom function of the practice unit is outsourced, the organisation providing the service must also provide the books to the practice unit.
How can I ensure that my accounting records will be immediately available?
You must ensure that whatever approach is taken to the storage of accounting records that these records are immediately available. If you retain accounting records internally this means that you must establish systems to ensure that you can retrieve records whenever required. If you choose to use an external physical or online storage option you need to ensure that your terms of business with that provider are sufficient to achieve the immediate availability of the accounting records.
Should I seek assistance with accounting?
This is a decision for individual practice units. You need to determine what level of assistance you need to comply with the rule.
However, solicitors considering carrying out their own accounting work should consider whether it is realistic to expect that they will have the time (and skills) to carry out this work adequately.
What factors should I take into account when selecting accounting staff or external accounting service providers?
You should consider the adequacy of the qualifications and experience of any person or external provider you are planning to engage to provide you with accounting support. Accountancy bodies such as ICAS and SOLAS may be able to assist you in identifying members with suitable experience.
You should ask potential staff recruits and external providers to explain their prior experience of working with other practice units. You should consider requesting references from previous employers in the Scottish legal sector/relevant clients of external providers.
Can I contact the Financial Compliance Department on accounting issues?
The Financial Compliance Department offers assistance and support. You can request a meeting with a member of the team to discuss the requirements of the rules. Details of what we offer can be found on our website under D4: Starting a New Practice.
Decisions about staff, software and accountancy service providers can only be taken by practice units.
Rule 6.7.3
How long must I keep the accounting records?
Accounting records must be retained for the remainder of the financial year of the practice unit and the previous six financial years of the practice unit – called the Required Retention Period per rule B6.1.1.
Rule 6.7.4
What evidence of paid cheques does this rule require me to keep?
Either the actual paid cheques or digital copies of both sides of all cheques, supplied by your bank, or an arrangement which allows you to obtain copy cheques promptly on request as set out in the rule. It is recommended that you agree this in writing with your bank.
This also applies to firm cheques.
Why does the digital image need to show the front and back of a cheque?
The back of a paid cheque will often show details of the account which has been credited with the funds. This is an important element of the audit trail.
How long do I need to ensure that images of cheques (whether in the form of physical copies or digital images) are kept?
The required retention period set out in Rule 6.1.1 applies to cheques and therefore the response given above for Rule 6.7.4 is also relevant here.
Client bank statements to be regularly reconciled
Rule 6.8.1
How often should I carry out these reconciliations?
You must reconcile your general client bank ledgers with the bank statements every month to coincide with your month end balancing date.
Is there any merit in doing a more frequent reconciliation?
If the practice is very busy, carrying out this reconciliation on a daily or weekly basis may be beneficial in reducing the month end work to more manageable levels. However, there must always be reconciliations to the monthly procedures date.
How long should I retain the documented reconciliation and supporting papers?
Accounting records must be retained for at least the Required Retention Period from the date of the last entry. The Required Retention Period is defined in Rule 6.1.1 as being a period equal to the remainder of the financial year of the practice unit and a further six financial years of the practice unit.
Rule 6.8.2
All points noted for Rule 6.8.1 also apply to Rule 6.8.2
What is meant by surplus/float
In terms of Rule B6.8.2 at the month end balancing date the reconciled bank balance should be compared to the total client credit balances. If the reconciled bank balance is higher than the total client credit balances this would be firm money and is usually known as a surplus/float.
Do I require to hold a surplus/float in the client account?
No, you do not require to hold a surplus/float within the client account, the reconciled client bank figure and total client credit balances can both agree, but there would be no margin for error if no surplus is held.
If client credit balance and reconciled client bank balance is the same do I still require to prepare a surplus/float calculation?
Yes – it is still a requirement of the rules to evidence the surplus/float position.
Is there any merit in doing a more frequent surplus/float calculation?
Although the rule states a monthly surplus/float calculation should be prepared if a computerised system is utilised that has a daily statement facility this should be used.
If the comparison of the client credit balances with the reconciled client bank balance identifies a client account deficit what action is required?
You must immediately rectify the deficit. This may have to be done by introducing your own funds.
Any deficit should also be disclosed as a breach of 6.3.1(a) on your practice unit's next Accounts Certificate.
Client funds invested in specified accounts
Rule 6.9.1
How often do I need to carry out the reconciliation of ledger balances for monies held in specific accounts for named clients to bank statements/passbooks etc.
You must carry out this reconciliation on a quarterly basis to coincide with your accounts certificate period end dates.
All guidance applicable to Rule 6.8.1 also applies to this rule.
Is there any merit in doing a more frequent reconciliation?
Yes, especially if numerous accounts or accounts with frequent transactions such as POA are held.
The bank won’t/can’t give me verification, what can I do?
If you are unable to obtain verification from the bank you may require to change bank facility. See 6.10.1 on when you require to invest.
Rule 6.9.2
How do I evidence an invested fund reconciliation?
A list of invested funds balances held per your accounting records as at the relevant balancing date should be prepared and retained. This list should be agreed to a source of independent verification (such as a statement) received from the relevant financial institution.
Interest to be earned for a client
Rule 6.10.1
How does this rule work?
The Society has opted to avoid stating fixed periods and levels of client balances regarding the earning of interest. Instead, sums must now be invested when the amount of interest which could be earned exceeds the level prescribed by Council which is currently £150. Your practice unit needs to estimate the likely level of interest which would be earned given the amount held, the expected time period that the amount is to be held and the prevailing interest rate at the time.
Regular review should take place to ensure that decisions remain valid, taking into account factors such as changes in interest rates or changed expectations regarding how long funds are to be held.
Rule 6.10.2
Does the rule require interest to be earned on trivial client balances?
No. The prescribed level of interest likely to be earned (above which investment is expected) is set by Council at what is regarded as a practical and reasonable level.
Rule 6.10.3
Is there flexibility regarding earning interest for a client?
Yes. Rule 6.10.1 sets a standard approach which should be adhered to in the absence of any other approach being agreed with the client. Rule 6.10.3 allows a solicitor to agree other approaches in writing with a client.
If the arrangement is set out in the Terms of Business issued to clients, a signed copy must be held so that this evidences a written arrangement agreed between the practice unit and the clients.
The client's written agreement to any arrangement must be held.
This would apply to interest arrangements for any "Global Investment Schemes" where it would be necessary to disclose to your clients that your practice unit will benefit from a share of interest payable on their invested funds. In such schemes the interest of the client must come first and you should ensure that the client gets as least as good a rate as they would have if the funds were not invested in the proposed scheme.
If I decide to invest and the interest received on these accounts is less than £150 for the duration of the transaction, can I retain this interest?
No because the invested fund account is in the name of the client and the practice unit must account to the client for any interest earned as detailed in 6.10.1
Client balances held after the conclusion of a matter
Rules 6.11.1 to 6.11.7
The requirements of the rule and guidance apply to balances held in general accounts or in invested accounts.
Rule 6.11.1
Why do I need to manage client balances which are retained by my practice unit after the conclusion of matters?
These balances remain the property of your clients and must be returned to them promptly as soon as there is no longer any reason to retain the money. It is expected that in most cases where a matter has concluded, balances should not be required after two months.
Practice units should carry out a monthly review of balances held by them so that balances which are no longer required can be identified and then returned promptly. Such a review will also identify balances where the practice unit decides that there is a continuing good reason to hold the balance within the practice unit. In such cases, the practice unit should document the review they have undertaken to record the reason why it is not appropriate to return the balance to the client.
By carrying out a monthly review as noted above and then acting on the results of the review to dispose of old and small balances promptly and in accordance with the rule, practice units will no longer build up old balances which are no longer required for a transaction.
Rules 6.11.3 to 6.11.7
Detailed Guidance on the Operation of Rules 6.11.3 to 6.11.7
Rule 6.11.3
Rule 6.11.3 refers to small balances within the stated limits whether in general client accounts or whether invested. (The stated limits can be varied by Council. The Society will consult with the KLTR before Council is asked to approve changes to these limits.) Guidance will be updated to reflect any changes in the stated limits, but solicitors should take steps to ensure that they are referring to the up-to-date limits when dealing with balances.
Sums between £10 and less than £50
What does the Rule allow?
Where the practice unit does not hold up-to-date address or other contact details for the client, the rule allows these sums to be paid either to the KLTR or a registered charity of the solicitor's choice (but subject to the requirement to comply with the law regarding Crown property - see below).
What should be included in Terms of Business?
A practice unit should include in its Terms of Business that where the address or contact details provided by a client are found not to be current then no further efforts need be made to find new contact details for the client before the practice unit can dispose of the balances in accordance with the rule. (Again this is subject to the requirement to comply with the law regarding Crown property.)
Accountability
Solicitors should be aware that they are accountable for their decisions to submit funds within this range to registered charities or the KLTR. Solicitors may need to reimburse their clients at a later date, for example if it turns out that they did have current contact details or did not address the treatment of funds in their Terms of Business.
Funds within this range will not be returned by the KLTR at a later date as the KLTR's administration fee is £50 and it is unlikely that a registered charity will be willing or able to return funds at a later date.
KLTR and Crown Property
The rule allows solicitors to dispose of such balances by submitting them to registered charities or the KLTR.
In most cases solicitors will not have the information available to be sure that the funds represent Crown property. This is because for funds between these values, the rule accepts that it is not economically practicable to carry out further investigations to find an up-to-date client address or other contact details. Therefore the solicitor in most cases will simply be disposing of funds where the address on file is no longer up to date and no further work can be justified to find a new address.
However, in some cases, it will be clear that the balances represent Crown property. It is also possible to clarify if certain balances represent Crown property by carrying out some straightforward steps.
If it is clear that a balance represents Crown Property, this supersedes the ability under this rule to send funds to a registered charity. In these cases, it will only be appropriate to send funds to the KLTR. This would apply where a company or limited liability partnership was known to be dissolved.
For corporate clients generally, a solicitor should, in any case of uncertainty, ascertain the status of the company (or LLP) through a Companies House search as part of the process of deciding how to dispose of the balances covered by this part of the rule. Where the search discloses that the company (or LLP) is dissolved and is a Scottish registered company then the balance represents Crown property and can only be submitted to the KLTR. Such balances cannot be submitted to a registered charity. Similarly, where the search discloses that the company is in administration, receivership, liquidation or other insolvency process, balances should be submitted to the company, followed by the words "(In Receivership)" or as appropriate.
Why can I not take a fee for the work outlined in sending balances to KLTR or a registered charity?
All that is required under Rule 6.11.3 is the identification of balances within certain parameters and the despatch of these balances to the chosen destination. No additional work is required to trace the client (other than that associated with dissolved companies or companies the subject of an insolvency process) and no further value can be added by the solicitor. In these circumstances it would not be appropriate to take a fee.
What do I do if a client comes to me after I have sent their balance to a registered charity?
You should explain the process you undertook to contact them (although the rules do not require this for balances of between £10 and less than £50, you may wish to keep a record of that process) and the Terms of Business agreed with the client. The decision to send funds to a charity is your decision and at your risk. You are unlikely to be able to recover these funds from a charity and may have to repay the funds to your former client.
Sums of £50 and more
Rule 6.11.4
How much work do I need to do to attempt to trace a client for a balance above the prescribed maximum?
The rule requires you to use reasonable endeavours to trace the client. What is reasonable will vary depending on the level of the balance with more work being reasonable as the value of the balances increases. Solicitors should document the work they have done to trace clients and to justify any fee taken.
What process should be followed to submit funds to the KLTR?
Rules 6.11.3 and 6.11.5 and balances for untraced beneficiaries
The following process should be followed when submitting funds to the KLTR pursuant to rule 6.11.3 or 6.11.5. Credit balances which are held in respect of untraced beneficiaries, or in other circumstances, and which may be substantial sums, may also be remitted to the KLTR. In the event that the client or beneficiary is found or appears at a later date then the funds may be recovered from the KLTR (but note that the KLTR will not normally repay funds more than 10 years after the date they were received by her). An administration fee will be deducted by the KLTR which is currently £50.
Where funds were held for a client or an untraced beneficiary, the following information requires to be provided to the KLTR when submitting the funds to the KLTR:
- name of client/beneficiary, and any information as to what the funds related to
- last known address of client/beneficiary
- details of the efforts made to trace the client/beneficiary (where the amount is less than £50 this will comprise an explanation as to why the last contact details for the client/beneficiary are no longer considered to be up to date).
Where such funds are remitted to the KLTR, if a refund is subsequently sought it is the KLTR's practice to refund the money to the practice unit which submitted the payment rather than direct to the client/beneficiary who may have reappeared.
Where funds were held for a dissolved company (or LLP), evidence of dissolution (which can be obtained from the Companies House Website as indicated above) requires to be provided to the KLTR when submitting the funds to the KLTR.
There are forms which may be used when submitting funds to KLTR For individual's balances KLTR 1 and for Dissolved Scottish Company balances KLTR 2
Contact details for the KLTR are noted below:
King's and Lord Treasurer's Remembrancer Office Scottish Government Building
1F North Scottish Government Building Victoria Quay
Edinburgh EH6 6QQ
NOTE: the KLTR will accept a composite cheque for various balances held so long as any permitted fee deductions are taken from each balance and a breakdown, to include the appropriate information required above, is provided with the cheque.
Rule 6.11.6
Why do I need to keep a record of my efforts to trace a client?
You are taking a decision about the disposal of money which does not belong to you. Despite your efforts the client may come forward in the future seeking recovery of their funds. It is therefore in your interests to retain a documented audit trail of what you did to trace the client.
Duty not to act dishonestly
Rule 6.12.1
What sort of behaviour is covered by this rule?
The rule is self-explanatory regarding dishonesty. It also covers reckless actings and behaviour which is intentionally misleading. An example of the type of behaviour which would be likely to be considered as a breach of this rule would be the deliberate falsification of records and the presentation of these to another person or organisation (such as the Society's inspectors) as being accurate documents. Potential breaches of this rule will be considered by the Client Protection Sub-Committee on a case-by-case basis.
Cashroom Manager
Rule 6.13.1
I'm not Cashroom Manager, so why do I need to worry about compliance?
All regulated persons are responsible for ensuring compliance with the Accounts Rules and reference is made to the requirements of Rule B6.2.3(b).
Rule 6.13.1
Can you explain the role of the Cashroom Manager and how it interacts with the other partners and their responsibilities?
The Cashroom Manager has accepted supervisory responsibilities on behalf of the partnership or incorporated practice in accordance with Rule B6.13. As the compliance responsibilities set out in Rule B6.13, the Cashroom Manager is also responsible for completing and submitting Accounts Certificates timeously. More than one Cashroom Manager can be appointed at any one time but there should be clear definition of their individual roles. Sharing or rotating of tasks can be arranged if suitable to the practice unit and the managers.
Rule 6.13.2
What skills will a Cashroom Manager need to have?
The rule requires a Cashroom Manager to use reasonable endeavours to acquire and maintain the skills necessary to discharge the responsibilities of the role. A Cashroom Manager would be expected to have an understanding of the Accounts Rules and how they are applied in the practice unit. The depth of the understanding which is necessary will vary with the support which is available from other staff or advisors who have relevant skills such as cashroom staff and the degree to which the Cashroom Manager has to personally carry out cashroom tasks in the practice unit. The Cashroom Manager should have sufficient supervisory skills to ensure that he can be satisfied with the operations of the cashroom whether through direct supervision or through assurance received from other staff or systems in the practice unit.
The Law Society of Scotland is able to formally assess the knowledge of Cashroom Managers regarding Rule B6 (see below)
Rule 6.13.2 (b) & (c)
How does the assessment of Cashroom Manager knowledge of the accounts rules work and how might it affect me?
The 2023 rule changes gave the Law Society of Scotland the ability to require Cashroom Managers to complete an assessment of their knowledge of the Rule B6. The nature and content of the assessment will be set by the Society and will aim to provide further assurance that Cashroom Managers do have the knowledge necessary to be effective in the role so that client money is properly protected.
Newly appointed Cashroom Managers are required to complete the assessment within 12 months of their appointment. The coverage/frequency of assessment for other Cashroom Managers will be set by the Society. Timescales set for Cashroom Managers to complete assessments are mandatory. Cashroom Managers will be given reasonable notice of when the assessment is to take place and its format.
The Financial Compliance Department will take a risk-based approach to the implementation of this rule. If a Cashroom Manager does not demonstrate an appropriate level of knowledge of the requirements of Rule B6 in their assessment, this will not result directly in any disciplinary action against the Cashroom Manager. Instead the following actions will be considered following such a result:
- Cashroom Managers may be required to repeat the assessment
- The risk profile of the practice unit will be reconsidered by the Society which may result in the scheduling of earlier and more frequent inspections of the practice unit’s compliance with the Rule B6. This may lead to further action if inadequate levels of compliance with Rule B6 are identified in these subsequent inspections.
Where a Cashroom Manager has not demonstrated an appropriate level of knowledge of the requirements of Rule B6, the Cashroom Manager should take further steps to improve their knowledge in advance of any reassessment and any scheduled inspection of the practice unit’s compliance with Rule B6.
Rule 6.13.3(a) & (c)
What is the role of the Cashroom Manager in training of staff?
Rule 6.13 places a responsibility on a Cashroom Manager to use reasonable endeavours to ensure that officers and employees have an adequate understanding of the application of the accounts rules in so far as their duties involve compliance with the rules. The Cashroom Manager will clearly want to be satisfied that officers and employees with cashroom roles have detailed knowledge of the rules and how they are applied in the practice unit. The Cashroom Manager will wish to ensure that adequate accounts rules induction training for new cashroom staff/staff changing roles and ongoing update training is in place for all cashroom staff.
For other officers and employees outwith the cashroom, varied levels of accounts rules knowledge will be needed and the Cashroom Manager should be satisfied that a training structure is in place to deliver this training on an initial and ongoing basis.
Does the Cashroom Manager need to deliver accounts rules training personally?
No. A Cashroom Manager can do this if they have the time and skills to do so. However, the rule acknowledges that in many cases this will not be practical or necessary and that the Cashroom Manager will instead arrange for the training to be provided. The Cashroom Manager should be satisfied that any training to be provided is of the required quality.
Rule 6.13.3(a) & (b)
What is the role of the Cashroom Manager in the supervision of officers and employees?
The Rule places a supervisory responsibility on the Cashroom Manager "in each case so far as the duties of such officers and employees involve compliance with the rules". The Cashroom Manager will clearly need to implement a robust and evidenced supervisory process for the cashroom. However, the cashroom is not the only part of the practice unit which ensures adherence to the accounts rules and it cannot operate in isolation from the rest of the practice unit. The Cashroom Manager should take steps to become aware of and ascertain the adequacy of supervisory arrangements in place to ensure accounts rules compliance amongst staff outwith the cashroom including those in specialist areas such as conveyancing.
Does the Cashroom Manager need to deliver all supervision personally?
No. A Cashroom Manager can put in place a supervisory structure to ensure that such tasks are undertaken by suitably skilled staff at various levels. The Cashroom Manager should ensure that such a structure delivers regular and reliable assurance to him that supervisory work is being carried out. This could take various forms (eg: submission of completed control checklists, review of key documents for evidence of supervisory checks, occasional review of reconciliations).
Whatever approach is taken it would be prudent for the Cashroom Manager to evidence whatever supervisory work he carries out as part of the practice unit's overall control audit trail.
In some specialist areas such as a conveyancing department the Cashroom Manager would not have the primary supervisory responsibility. However as the work of such a department involves complying with certain accounts rules and impacts on the operation of the cashroom it would be good practice for the Cashroom Manager to liaise with the officer responsible for the area to assure himself that suitable supervisory arrangements are in place. This would also be an opportunity to raise any issues regarding the linkages between the two departments.
Part III - Accounts Rules
Obligation to deliver a certificate
Rule 6.15.1
Why do I need to deliver certificates?
Certificates are the method by which solicitors provide certain assurances to the Society regarding client monies and various related processes. The Society uses this information to monitor practice units' compliance with rules, assess risk and to help it make decisions regarding regulatory matters such as inspection scheduling.
What happens if I have breached the Accounts Rules?
You should take steps to correct the breach or breaches and write to the Financial Compliance Department explaining the position. You should explain the nature of the breach, what steps you have taken to rectify it and provide a timescale within which the rectification will be complete. You should also disclose the breach or breaches in the Accounts Certificate, where there is a section to record the issues. If you are unsure how to resolve the breach(s) you should liaise with your cashroom staff or accountant initially. However, you may also contact the Financial Compliance Department for assistance.
I hold no client funds - do I need to deliver a certificate?
Yes - but not as frequently as a practice unit which does hold client funds. Within Rule 6.1.1, the accounting period referred to in this rule is defined. For practice units holding no client funds an accounting period as defined as "a period not exceeding 12 months in duration". Reducing the certificate frequency for practice units which hold no client funds is a proportionate reflection of the risks faced by such practice units. However, the Society still wishes to receive certificates on a 12 monthly basis to confirm that client funds are not held. The certificates to be delivered by practice units which hold no client funds are much shorter and simpler than the certificates required from other practice units.
What is the accounting period referred to in the rule?
This is defined in Rule 6.1.1as being a period not exceeding six months in duration for practice units holding client money. You should set up an accounting period of no more than six months from the start of a new practice and report in the approved style within one month of the accounting period end. Certificates should be for consecutive periods of time, without gaps or overlaps, and should not cover more than six months.
Rule 6.15.2
In what circumstances would the Society require a certificate on a more frequent basis than is normally required?
This might be required where significant rule breaches had been identified in an inspection and it was felt necessary to closely monitor progress in rectifying the rule breaches through the submission of very regular Accounts Certificates.
In what circumstances would the Society require a certificate containing more detailed information than is normally required?
The situation noted above might also lead to a more detailed certificate being required. In both of these situations it is envisaged that this will be applied in exceptional cases in response to risks identified.
Rule 6.15.3
If I am aware that I will not be able to deliver a certificate within the required time period - what should I do?
You should communicate with the Financial Compliance Department in advance to explain the difficulty you are having and to seek an extension to the period. You will be required to provide a satisfactory reason as to why an extension should be granted. No extension can be granted beyond three months after the date on which the certificate would have initially been due.
Rule 6.15.4
What happens if I do not submit a certificate within the required time period?
Reminders will be issued following any missed deadlines including cases when extensions have been granted. If reminders do not result in the certificate being submitted then the case will be brought to the attention of the Guarantee Fund Sub Committee to decide on the appropriate action. This can include inviting solicitors to a Guarantee Fund Interview prior to potentially deciding on any required disciplinary action.
Who may sign a Certificate
Rule 6.16.1 to 3
This rule is self-explanatory. Sign off as outlined in the rule by the Cashroom Manager is required as certification by the responsible officer that the certificate has been completed accurately.
Where solicitor practices in two or more places
Rule 6.17
For Multi-National Practices (MNPs) there is a requirement to report to the Society where significant breaches of another regulator’s accounts rules have been breached and reflected in an Accountants Report (or equivalent) submitted to that regulator. The circumstances where a report to the Society is necessary are set out in subsections (a), (b) and (c) of 6.17. The purpose of the new requirement is to ensure that the Society is aware of significant accounts rules compliance issues within the MNP which increase the risk of accounts rules non-compliance affecting the Scottish offices of the MNP or Scottish solicitors working within the MNP. Any matters reported to the Society will be considered as part of a risk-based approach and may result in Society follow up enquiries or the scheduling of an inspection.
Cashroom Managers of the MNP will need to ensure that internal processes have been established within the practice unit to ensure that they are promptly made aware of relevant matters which are being reported to another regulator by the MNP. The Cashroom Manager will then need to consider if the practice unit is required to report the matters to the Society to ensure compliance with 6.17. The Cashroom Manager should keep a note of any matters considered where the decision is taken not to make a report to the Society.
Reports required under this rule should be emailed to fincomp@lawscot.org.uk for the attention of the Director of Financial Compliance.
Part IV - Inspections & Investigations
Inspections & Investigations on behalf of the Council
Why are inspections necessary?
The purposes of inspections are listed at Rule 6.18.3. Inspections are the method by which the Society has chosen to fulfil the requirements listed. Inspections are scheduled according to various factors including the time since a previous inspection of the practice unit, whether the practice unit is a new one and various other factors including for instance, findings from an early inspection or intelligence received.
Who will receive notices related to accounts rules issues, inspections etc?
Notices will be sent to the Cashroom Manager as the nominated person responsible for securing compliance with the provisions of these rules. The Cashroom Manager is expected to make other managers, officers and employees aware of the contents of the notice as appropriate. For instance it would be appropriate to tell other managers, the Money Laundering Reporting Officer and cashroom staff that the Society had notified that an inspection was to take place on a specific date.
The Society may send notices to all managers (partners/directors) when this is felt to be necessary.
Rule 6.18.1
Why is "practice information" required for an inspection/investigation not simply limited to the accounting records?
Completion of an inspection/investigation will frequently require information to be provided which is not accounting information
Rule 6.18.3
How will I be informed that my practice unit will be inspected and what notice will I be given?
In nearly all cases, a Cashroom Manager will receive a formal notice of an inspection. Usually this will be two to three weeks in advance of the inspection date. A Cashroom Manager is expected to tell other managers (partners/director/members) and relevant staff about a planned inspection.
Where considered necessary, the Society may notify all managers that an inspection has been scheduled.
Rule 6.18.3
Can an inspection take place without notice?
Yes, the Society can fix the time and place of the inspection. Rule 6.18.3
What will I be expected to do in advance of an inspection?
The letter intimating the inspection will include information as to the books and records which are required. You are expected to have these available at the commencement of the inspection.
A pre-visit questionnaire will also be enclosed for completion prior to commencement of the inspection.
Rule 6.18.3
Who will decide where and when an inspection will take place?
The notice received from the Society will specify how the inspection will be delivered. The Society will decide how it wishes to conduct the inspection which may be done fully remotely, fully onsite at the practice unit place of business or a combination with some of the inspection completed remotely and other sections done on site.
The rule allows the Council to fix a time and place for the inspection and from time to time it may not be appropriate to offer any flexibility regarding the timing or to progress any part of the inspection at the practice unit's normal place of business.
Rule 6.18.4 & 6.18.7
What does the Society mean when it notifies that an Investigation is to take place?
This means that the Council has concerns regarding non-compliance with the rules or the wider manner in which a practice unit is being operated. In these cases a routine inspection is unlikely to be sufficient to address the concerns of Council. It is likely that information will be sought which is not normally required for an inspection. This may include information which can only be provided by third parties such as clients, lenders, and banks. Therefore, the Society may require the practice unit to grant authorisation for such third parties to be contacted by the person conducting the investigation. Rule 6.18.7 outlines that reasonable co-operation is required from solicitors regarding the completion of the investigation and this includes the granting of this authorisation.
Rule 6.18.5 & 6.18.6
Can an inspection/investigation be postponed at the solicitor's request?
The Society will generally want to carry out an inspection at the time selected. However if you feel that there is a good reason why a postponement should take place you should contact the Financial Compliance Department to explain this and to discuss the possibility of a postponement. If a postponement is granted this cannot be for more than three months from the original date selected.
It is unlikely to be possible to postpone an investigation as concerns will already have been identified as set out above. Similarly some inspections may be scheduled as a result of risk factors identified which would mean that postponement would be difficult to grant.
If a three-month postponement is granted and the solicitor is unwilling or unable to supply practice information allowing an inspection to proceed, the case will be brought to the attention of the Guarantee Fund Sub Committee.
Rule 6.18.7
What is meant by reasonable co-operation with an inspection or investigation?
The following would be expected if reasonable co-operation was being provided;
- timely and accurate responses to reasonable requests for information within reasonable timescales. What is considered to be reasonable will vary depending on the urgency of the For instance it would be reasonable for the Society to require a very prompt response as part of an urgent investigation or where significant issues such as deficits have been identified
- solicitors and staff making themselves available to discuss inspection or investigation matters
- assistance in overcoming problems encountered during an inspection/investigation
- timely, complete and accurate responses to post inspection or investigation correspondence
- very prompt responses to information requests and correspondence where it is made clear that the matter is urgent/concerns a significant issue This would be applicable in many parts of an Investigation where the risk level is clearly high.
- timely granting authorisation to contact third parties such as clients and lenders as part of an approved Investigation
Rule 6.18.10
Why do reinspections/further investigations result in charges to the solicitor?
When an reinspection or a further investigation is approved by the Council it is not appropriate for the costs incurred in carrying out this work to be met by the profession as a whole. The reinspection or further investigation costs are being incurred because there is evidence of rule breaches within a practice unit and it is therefore appropriate that the practice unit meets the costs associated with this. The costs are therefore invoiced to the relevant practice unit based on a daily charge out rate agreed by Council from time to time.
Rule 6.18.11
How is the reinspection charge calculated?
Practice units are charged for reinspections utilising a daily rate approved by Council.
The daily rate can be applied to all time spent by the Society in progressing and completing a reinspection. Charging will be based on time records maintained by relevant Society staff and will include “part days”, time spent inspecting on and off site, report writing time, management time, and time spent following up with a practice unit to obtain required information and responses.
Deadlines will be set for provision of requested information and responses and an additional administration charge will be applied where these deadlines are not complied with.
The additional administration charge is intended to address situations where a further inspection has been authorised by the Client Protection Sub-Committee but delays by the practice unit regarding the provision of requested information and responses prevent the reinspection from being conducted and concluded efficiently. In these cases, it is appropriate that the additional costs incurred by the Society because of the practice unit’s delays are included in the reinspection charge. This situation only arises in a small minority of cases and a practice unit can avoid incurring any additional costs by ensuring that information requests are dealt with promptly and that responses are provided by the stated deadlines.
Rule 6.18.12
How quickly do I need to pay such a charge?
You should pay the charge in accordance with the stated invoice terms. If you are experiencing difficulty in paying the charge you should contact the Society to explain the position and the Society will consider options such as accepting payment by instalments. The Society will issue reminders regarding overdue invoices and will then consider the use of the debt collector or any other appropriate means to achieve recovery.
Part V - Professional Practice
Bridging Loans
Rule 6.19.1
How do I deal with bridging loans?
You must not enter into a bridging loan agreement on behalf of a client in circumstances which may impose on you personal liability for repayment in the event of default by the client. Bridging loans must always be in writing and you must give the lender full details of the client and what the arrangements are for repayment.
Can I lend money to a client?
Yes - but you should consider whether a conflict of interest might arise. Rule 6.19.2
What do I need to do following redemption of a bridging loan arranged on behalf of a client? You must ensure that you hold a receipt/closing statement showing that redemption of the bridging loan has been paid in full.
Borrowing from clients
Rule 6.20.1
Can I borrow money from a client?
No - unless the client has been independently advised about the loan or is in the business of lending money. (NB Personal and business loans are not covered by the Guarantee Fund.)
(NB the client must have been independently advised before the loan proceeds. Offering the client the opportunity to take independent advice which they acknowledge but decline to take is insufficient to comply with this Rule).
Prohibition on regulated person acting for lender to the regulated person or connected persons
These notes have been prepared with the help of the director of professional practice. If you are unsure how your specific case is affected by the rule, enquiries are welcomed before you begin to act.
Rule 6.21.
- CREATION, VARIATION and ASSIGNATION of SECURITIES
What loans are affected?
Secured loans to any of the managers (principals) in the practice or their spouse or civil partner, or any partnership of which they or their spouse or civil partner are a partner or any company in which they or their spouse or civil partner are shareholders (except holdings of less than 5% of quoted companies).
Can we act for the managers (principals) or their spouse or civil partner?
Yes - the rule only prohibits acting for the lender.
Can we act for the lender if the borrower is a consultant, associate or employee of the practice unit?
Yes - provided the consultant, associate or employee is not married to, or a civil partner of, a manager in the practice and provided no manager, or spouse or civil partner of a manager, is guaranteeing the loan.
Can we act for the lender where the borrower is the parent, brother, sister, son or daughter of a manager?
Yes - provided that no manager, or spouse or civil partner of a manager, will be guaranteeing the loan.
Why are guarantors included?
Rule 6.21.3 defines "loan" as including any obligation to pay money. That includes a guarantee of a loan to somebody else, even though it is only a contingent obligation.
Can we act in a variation or assignation of an existing standard security?
Again, the practice unit can act for the borrower, but not for the lender as the rule applies equally to variations and assignations as it does to the constitution of a standard security.
(NB - Reference is made to the instructions in the CML Lenders' Handbook concerning when a practice unit is entitled to act for both the lender and employees of the practice unit and care should be taken to ensure these instructions are fully adhered to).
- DISCHARGING SECURED LOANS
What about discharges?
The practice unit may not act for the lender until the borrower's obligations have been fully implemented.
At what stage in relation to a discharge does a solicitor act for a lender?
Only at the stage where the discharge has been executed and is held by the solicitor on behalf of the lender before the loan has been repaid in full. Drafting the discharge is done on behalf of the borrower, not the lender.
Can I send the discharge direct to the lender for execution?
Yes - but you must advise them not to return it to you but to either retain it until the loan has been redeemed or to send it to their own agents for onward delivery to you only after the loan has been redeemed.
- OTHER QUERIES
If I am buying a property with the aid of a secured loan, can the seller's solicitors act for the lender?
No - the Society's Professional Practice Committee takes the view that there is a conflict of interest between the seller and the lender to a purchaser.
If I am buying property and another practice unit is acting for the lender, can the lenders forward the loan funds direct to my practice unit or do they have to go through their own solicitors first?
The loan funds can be remitted direct to your practice unit if another practice unit is acting for the lender. Receipt of the loan funds does not of itself constitute acting for the lender.
Who should I contact at the Law Society if I am still in doubt about rule 6.21?
You should contact the Professional Practice Department.
Powers of attorney
Rule 6.22.2
What records do I have to keep when operating a power of attorney as a regulated person in the course of my practice?
If a regulated person is appointed as attorney in a professional capacity, then any money of the granter, whether held or received by a practice unit or intromitted with under the power of
attorney (subject to certain exceptions under 6.22.4) is clients’ money. You must ensure that such client funds are treated as client monies and are shown within the records of the practice unit and reconciled.
Accordingly a clear record of money paid in or out of the client's (granter’s) own bank account must be kept in a client ledger and cash book of the Practice Unit and that bank balance must be treated as client funds, shown within invested funds and reconciled.
What additional considerations are there where the Attorney is a Solicitor?
Any regulated person drafting a power of attorney appointing a solicitor as attorney in their professional capacity should encourage the granter to consider adding an alternative attorney to cover the event of resignation, incapacity or death of the solicitor as well as any scenario that sees the solicitor lose their practising certificate or have it suspended. Advice of this nature should be clearly evident from the file.
Power of attorney files should be retained until the power of attorney has come to an end.
What if I am asked to act as an attorney in a private capacity- do I need to treat any monies intromitted with under the power of attorney as clients’ money?
The presumption is that any regulated person who has a power of attorney granted in their favour has agreed to the appointment in their professional capacity.
If that is not the case and the regulated person is acting in a private capacity separate from their professional life - for example if the power of attorney is granted by (A) a person related by blood, adoption, marriage or civil partnership to the regulated person, or (B) a personal friend of the regulated person, then any monies intromitted with under that power of attorney need not be treated as clients’ money. The onus to demonstrate that the appointment is non-professional lies with the regulated person.
A private appointment by a person related by blood, adoption, marriage or civil partnership to the regulated person would be automatically deemed non-professional. A private appointment by a personal friend of the regulated person would not be automatically deemed non-professional and the onus of proving that the appointment is a private one would rest on the regulated person. In either case, an important aspect is to ensure that the granter is aware of the repercussions of a private appointment. Good practice would dictate that there is written evidence to show that the granter had been informed and accepted that they would not be entitled to claim on the Guarantee Fund.
Reference to persons “related by blood, adoption or marriage or civil partnership” is made in Rule
B.2.1 - Conflict of Interest.
It is recommended that the nature of the appointment (i.e. professional or private) should be included in the wording of the deed if the granter consents.
Rule 6.22.3
Do I need to keep a list of powers of attorney?
Yes - the Cashroom Manager must keep an up-to-date list of active and dormant powers of attorney in the name of every regulated person associated with the practice unit for submission with the accounts certificate. The list need only include powers of attorney granted in favour of such regulated person taken in a professional capacity.
Rule 6.22.4
Do I need to include in the list powers of attorney held for clients specifically for the purposes of submitting the SDLT 1 on behalf of clients or relative to ARTL?
No - powers of attorneys for these two areas are excluded under rule 6.22.4(b).
Do I need to include in the list powers of attorney held for clients specifically for the purposes of submitting of a Return to the Tax Authority in terms of the Land and Buildings Transaction Tax (Scotland) Act 2013, or for authorising or facilitating any procedure in relation to electronic documents, electronic conveyancing, electronic registration, or non-electronic documentation?
No - powers of attorneys for these two areas are excluded under rule 6.22.4(c).
Part VI - Guarantee Fund Guarantee Fund
Rule 6.24.1 - 6.26.1
The Guarantee Fund now operates as the Client Protection Fund. The Society's policies regarding the application of the Guarantee Fund rules are contained within the Client Protection Fund Guidelines which can be obtained from the Solicitor to the Client Protection Fund within the Financial Compliance Department and are available here.
