Interest on Client Money
In recent years we have seen the rules regarding interest on client money change several times.
In recent years we have seen the rules regarding interest on client money change several times. In the early 2000’s a firm was required to account to the client for any interest accrued over £20.00. Then in 2008 and after the recession hit, it appeared that the SRA understood that reaching a £20.00 mark for interest was unlikely and stated that the £20.00 rule was no longer in effect but the firm had to have a strict policy which accounted for client interest. We’re now in 2020 and the new SRA Accounts Rules are fully in place, with a much-reduced document overall.
The rule as it stands today is shown below:
- You account to clients or third parties for a fair sum of interest on any client money held by you on their behalf.
- You may by a written agreement come to a different arrangement with the client or the third party for whom the money is held as to the payment of interest, but you must provide sufficient information to enable them to give informed consent.
This is a departure from the policy rule and a significant departure from the £20.00 rule from the early 2000’s. It is still up to the firm to decide what is a “fair” sum of interest but there is no longer a need for a strict, separate written policy surrounding client interest alone.
Whilst this seems a lot easier, it is always recommended that a firm have some documentation which covers Rule 7. This ensures clients have been treated fairly and understand fully the position with the firm. Having the firm’s default position in the standard terms and conditions is a good place to start, ensuring that from the outset the client understands whether the firm pays interest, and if so, how much. It is worth bearing in mind that under this rule, the firm does not have to pay any interest, providing there is an explanation as to why. Reference to the current financial climate is a “fair” reason as to why it will not be paid on standard matters. If there is a specific matter involving significant sums of money, then bespoke terms and conditions should be drawn and sent to the client at the beginning of the case. This demonstrates transparency over interest on client money from the outset. This documentation gives the client the opportunity to contact the firm if they are unhappy with the interest arrangements, opening discussion before the case starts if necessary.
Like many of the new rules, on the face of it, it appears that everything is simpler. I would counter this interpretation by saying rather than “simpler” it’s more that the SRA is giving firms more responsibility to come up with their own approach and determination about what is “fair”. This does not necessarily mean that the firm should be any less vigilant. Good documentation and transparency with clients are essential from the outset. Utilising documents such as the standard T&C’s to accommodate interest policies is a great way to streamline rules like this one.
I always recommend reading further into the new rules rather than take them at “face-value”. Whilst the SRA have simplified the rules, it does not mean that the firm should be any less vigilant on the implementation of them. Erring on the side of caution is usually the safest course of action. Being able to demonstrate that the firm complies with the simplified rules via its own policies is essential.
Alex Simons
New Business Manager
The Law Factory LLP
