Firms must immediately replace client account shortages, SRA warns

Law firms have been reminded of their critical duty to promptly address any shortages in client accounts, according to a new warning notice issued by the Solicitors Regulation Authority (SRA).

These shortages can arise from various causes, such as administrative errors, cyber-attacks, or, in rare cases, dishonest acts by employees. Regardless of the cause, the SRA's notice highlights the immediate obligation for firms to replace any missing client funds.

The notice outlines the significant risks associated with delayed action on these shortages. For instance, clients who need to deposit money into a deficient account must be adequately informed of the situation. The importance of prompt action is further stressed to protect all clients' interests.

Paul Philip, the SRA's Chief Executive, stated, "Caselaw is very clear that the client account is sacrosanct. However, firms do report shortages on the client account for a variety of reasons. Our rules are also very clear - you must make good on any deficit promptly. A shortage on the client account presents a risk to all clients for whom you hold money."

Philip emphasised the trusted position solicitors hold when managing client money and the importance of maintaining that trust.

Additionally, the warning notice advises firms to establish clear procedures for regularly verifying their client account balances. Firms are also reminded of their obligation to inform their insurers if any discrepancies are found.

This warning from the SRA serves as a critical reminder for law firms to uphold their financial responsibilities and maintain the integrity and trust inherent in their profession.