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Interest on client money — SQE1 Accounts question

A worked single-best-answer question on interest on client money, with why each wrong option is wrong — the way SQE1 traps candidates.

Interest on client money

Ridley Solicitors held £200,000 in client account for six weeks for Mr Akhtar while his house purchase was delayed. The firm's website states that it does not pay interest on client money in any circumstances. Mr Akhtar's engagement letter did not mention interest and he has never agreed to waive it. When the matter completes, he asks whether he is entitled to interest.

Which of the following best describes Mr Akhtar's entitlement to interest?

  1. AHe is not entitled to interest, because the firm's published policy states that no interest is paid.
  2. BHe is entitled to interest only if the amount calculated exceeds £20.
  3. CHe is entitled to interest only if the money was held in a separate designated deposit account.
  4. DThe firm must account to him for a fair sum of interest, because no different arrangement was agreed in writing with him.
  5. EHe is not entitled to interest, because the firm bears the risk of the bank failing.
Show answer and reasoning
D is the best answer. Rule 7.1 of the SRA Accounts Rules requires a firm to account to clients or third parties for a fair sum of interest on money held for them. Rule 7.2 allows a different arrangement only by written agreement with the client, where the client has been given sufficient information to give informed consent. A general statement on a website is not such an agreement.

Rule: A firm must account for a fair sum of interest on client money unless a different arrangement is agreed in writing with the client's informed consent.

  • A A unilateral published policy is not a written agreement with informed consent under rule 7.2. (wrong rule)
  • B The fixed de minimis table belonged to the previous rules; the 2019 Rules require a fair sum. (wrong rule)
  • C The duty to account for a fair sum of interest applies to money held in a general client account too. (wrong rule)
  • E The firm's risk does not displace the duty to account for a fair sum of interest. (wrong rule)

Source: SRA Accounts Rules 2019, rr 7.1 and 7.2

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