Moneys Received from Third Parties

Registrar of Solicitors 03/07/2020

When acting for clients, most notably in respect of private equity or private loan transactions, solicitors are frequently asked to facilitate transactions by receiving, holding, and disbursing money received, not only from the solicitor’s client, but also from third parties. Often in such transactions, it is intended that the moneys being raised for, or to be used in, the transaction will be paid into and out of the solicitor’s client account. This involves the solicitor receiving moneys from third parties who are not clients of the solicitor.

Regulation 4(1) of the Solicitors Account Regulations 2014 provides that a solicitor who receives, holds, or controls clients’ moneys shall, without delay, pay such clients’ moneys into the client account. Clients’ moneys are defined as moneys received, held, or controlled by a solicitor arising from his or her practice as a solicitor for or on account of a client or clients, whether the moneys are received, held, or controlled by him or her as agent, bailee, stakeholder or in any other capacity. Where moneys are received for or on account of a solicitor’s client, the moneys are clients’ moneys and, accordingly, it is appropriate that such funds are paid into the client account, in accordance with regulation 4(1) of the Solicitors Accounts Regulations 2014.

However, where moneys are received from third parties that are not moneys received for or on account of a client or clients, these moneys do not come within the definition of clients’ moneys. It is therefore a breach of the regulations for a solicitor to pay such moneys or allow such moneys to be paid into the client account. The solicitor does not have a definitively binding obligation to account to a client for that money. These moneys should not be paid into the client account. Regulation 5(4) of the Solicitors Accounts Regulations 2014 provides that, for the avoidance of doubt, it shall be a breach of the regulations for a solicitor to pay into or hold in a client account moneys other than clients’ moneys. Accordingly, where a solicitor facilitates a transaction by allowing funds received from third parties to be paid into a client account, that solicitor shall be in breach of the Solicitors Accounts Regulations. Therefore, solicitors should not facilitate such transactions.

Furthermore, a solicitor is obliged to adopt policies and procedures to prevent and detect the commission of money-laundering and terrorist-financing offences. A solicitor has an obligation to identify and verify the identity of clients and to make such enquires into the source of funds as are reasonably warranted by the risk of money-laundering and terrorist-financing. Complying with these obligations presents significant difficulties for solicitors in receipt of funds from third parties.

John Elliot
Registrar of Solicitors and Director of Regulation