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Client account and payments in — SQE1 Accounts question

A worked single-best-answer question on client account and payments in, with why each wrong option is wrong — the way SQE1 traps candidates.

Client account and payments in · Ethics

Mr Ward, a wealthy existing client of Pemberton Solicitors, recently sold his yacht privately without any legal assistance. He asks the firm to receive the £50,000 sale proceeds into its client account and then to pay his credit card bills and his children's school fees from the money over the next few months. The firm is not currently acting for Mr Ward on any matter. He offers to pay an administration charge for the service.

How should the firm respond to Mr Ward's request?

  1. AIt may agree, provided it records the receipts and payments on a separate client ledger for Mr Ward.
  2. BIt may agree, provided Mr Ward gives written instructions for each payment.
  3. CIt must refuse, because a client account must not be used to provide banking facilities and payments through it must relate to regulated services delivered by the firm.
  4. DIt may agree, provided it pays Mr Ward a fair sum of interest on the money while it is held.
  5. EIt may agree, because Mr Ward is an existing client of the firm.
Show answer and reasoning
C is the best answer. Rule 3.3 of the SRA Accounts Rules prohibits using a client account to provide banking facilities to clients or third parties. Payments into and out of client account must be in respect of the delivery by the firm of regulated services. Receiving and paying out money where no underlying legal work is being done is a classic improper use of client account and carries money laundering risk.

Rule: A client account must not be used to provide banking facilities; money passing through it must relate to regulated services delivered by the firm.

  • A Accurate records do not cure the prohibited use of the client account as a banking facility. (wrong rule)
  • B Written instructions do not make the payments relate to regulated services. (wrong rule)
  • D Paying interest does not make the arrangement permissible. (wrong rule)
  • E Being an existing client is irrelevant; there is no legal work to which the money relates. (right rule, wrong facts)

Source: SRA Accounts Rules 2019, r 3.3

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