SRA focus on escrow services | SRA lawyer
The SRA seem to have concentrated on various ‘hot topic’s over the last few years, including Miners Compensation, overcharging in PI cases, failure to pay ARP [Assigned Risk Pool] premiums and Litigation Funding [Axiom]. The current focus seems to be on the use of Escrow Services by firms of solicitors, when these have been used in various financial services promotions. √جª¬ø
Solicitors often find that they are aslo subject to regulation by other regulators such as the FCA in these circumstances.
The 1998 guidance note (ix) to rule 15 of the Solicitors’ Accounts Rules 1998 stated:√جª¬ø
“Solicitors may need to exercise caution if asked to provide banking facilities through a client account. There are criminal sanctions against assisting money launderers”.√جª¬ø
In March 2004 the note to rule 15 was revised to reflect the decision of the Solicitors Disciplinary Tribunal in Wood and Burdett. As a result, the note took in paragraph 143 of that decision – that it was not the proper part of a solicitors’ everyday practice to operate a banking facility for third parties, even if they were clients. The note continued:√جª¬ø
“Solicitors should not, therefore, provide banking facilities through a client account. Further, solicitors are likely to lose the exemption under the Financial Services and Markets Act 2000 if a deposit is taken in circumstances which do not form part of a solicitor’s practice. It should also be borne in mind that there are criminal sanctions against assisting money launderers.“√جª¬ø
The preface to the Solicitors Accounts’ Manual, 9th edition, explained that, from 17 March 2004, note (ix) to rule 15 had been updated to reflect the view of the Solicitors Disciplinary Tribunal, “that the provision of banking facilities through a client account does not form part of a solicitor’s practice”.√جª¬ø
In 2011 the SRA Accounts Rules were recast. There is now a clear distinction between the rules, which are mandatory, and the guidance notes, which are not. Thus rule 2.1 states that “the guidance notes do not form part of the rules”. The thrust of note (ix) to Rule 15 has now become a rule, rule 14.5. It reads:√جª¬ø
”You must not provide banking facilities through a client account. Payments into, and transfers or withdrawals from, a client account must be in respect of instructions relating to an underlying transaction (and the funds arising therefrom) or to a service forming part of your normal regulated activities.“√جª¬ø
The note to rule 14.5 provides that the rule reflects decisions of the Tribunal that it is not a proper part of a solicitor’s everyday business or practice to operate a banking facility for third parties, whether clients or not.√جª¬ø
The definition of the new rule has been considered in a number of recent cases including:
Patel V SRA 29.11.12 [Moore-Bick LJ and Cranston J ] [2012] EWHC 3373 (Admin)
Fuglers v SRA (2014) [Popplewell J] EWHC 179 (admin) (QB)
SRA v Agombar 2015 SDT 20th January – 17th March 2015
SRA v Connick 2014 SDT 10th November 
Most of the cases consider whethere or not there was an underlying transaction, or whether the case was in reality mere provision of banking services. Current sanctions varied from fines fom £7,500 to £50,000. In Wood and Burdett [2003], Wood, who had a disciplinary record and faced other serious allegations was struck off, but Burdett was suspended for 12 months for the client account breaches.√جª¬ø
Jeremy Barnett is currently advising in four cases which relate to the provision of escrow services in various situations.