Improper use of a client account as a banking facility
Karen Hain · Posted on: November 28th 2025 · read
Back in Spring 2023 we released a series of blogs considering the improper use of a client account as a banking facility which had been flagged by the SRA as a high-risk matter, such that they published a warning notice relating to the compliance with this Rule.
Nearly 2 years on and our work on reporting accountants are still finding potential banking facilities as breaches of Rule 3.3. So, let’s consider a refresher of this rule and procedures that you might put into play within your firms to reduce the risk of this breach occurring.
The Rule and Its Purpose
Rule 3.3 states:
“You must not use a client account to provide banking facilities to clients or third parties. Payments into, and transfers or withdrawals from a client account must be in respect of the delivery by you of regulated services.”
Regulated services are defined as legal and other professional services regulated by the SRA, including acting as a trustee or holding a specified office or appointment.
The Rule reflects the principle that solicitors are not banks. The misuse of client accounts can facilitate money laundering, fraud, or avoidance of insolvency obligations, and undermines public trust in the profession.
SRA Principles
The SRA warning notice also flags up the issue that if you allow your firm’s client account to be used for purposes outside of the Rules then you may also be breaching the SRA principles by:
“Failing to act in a way that holds the constitutional principle of the rule of law and the proper administration of justice (Principle 1);
Failing to act in a way that upholds public trust and confidence in the solicitors’ profession and legal services provided by authorised persons (Principle 2).
Failing to act with independence (Principle 3).
Failing to act with integrity (Principle 5)”
Examples of Improper Use
The SRA and other commentators have published case studies illustrating breaches of the Rule within this theme and a sample of these include:
- Holding unconnected funds: A firm holds money for a client at which a partner is involved as board member. Interest rates paid under the firm’s client account is higher than can be obtained at the client’s own bank. The client therefore leaves an amount with the firm, solely to gain better interest rates. This is deemed a banking facility.
- Third-party payments: A client asks the firm to pay unrelated third parties from the client account. If not linked to a regulated service, this is prohibited.
- Residual balances: Holding funds after a matter concludes, even if the client intends to instruct the firm again, is not permitted unless a new regulated service has commenced.
- Transfers between related matters: Moving funds between matters for related parties (e.g., a company and its director) without a transactional link may breach Rule 3.3.
Proper connection
The SRA warning notice is quite clear in its wording that “there must be a proper connection between the delivery by you of regulated services and the payments you are asked to make or receive”. It’s almost feels like this sentence should be etched onto the top of every lawyer’s computer screen! It is fundamental.
You are already following quite a stringent anti money laundering procedure with respect to funds received by you into your client account, answering questions regarding the source and purpose of these funds, and whether the transaction fits the normal legal service routine.
At the opposite end of the scale, you should also be considering why you are being asked to make a payment out of your client account, and perhaps why the client cannot make that payment themselves.
Convenience for your client is not a reason for you making a payment on their behalf. Having a written instruction from your client is not the reason for undertaking that transaction. You consider AML on receiving monies so you should also be considering AML on making payments out, to ensure that you de-risk your firm from any involvement in dubious transactions.
A more serious risk factor to consider is also whether your client is leaving their monies in your client account to exclude them from an insolvency.
Residual balances
Don’t forget that under Rule 2.5 you also are expected to return client money to your client, or a third party to whom it belongs, as soon as there is no longer a proper reason for you to hold those funds. Holding onto these residual balances can also be deemed to be a banking facility breach.
Risk Management and Regulatory Expectations
The SRA expects firms to:
Maintain robust systems and controls.
Be proactive in identifying and mitigating risks.
Document decisions and rationale for holding or transferring client funds.
Seek guidance when in doubt.
Practical Application and Compliance
To comply with Rule 3.3, firms should:
Assess the purpose of each transaction: Is it directly linked to a regulated service?
Avoid convenience-based requests: Client convenience is not a valid reason to hold or transfer funds.
Train fee earners: Ensure all staff understand what constitutes a banking facility.
Return residual balances promptly: Use all available contact methods to reach clients.
Use escrow services where appropriate: For complex or high-value transactions, consider regulated escrow agents.
You may want to consider amending your client account withdrawal authorisation procedure and your client-to-client transfer authorisation procedure. You need to be prompting your fee earner to ask the questions whether this payment is confirmed to be directly linked to your regulated service.
Your finance team must also be comfortable in challenging the instruction that your fee earner has given to them. They are your backstop control in this process.
Our expert's final thoughts
"Go back and re-read the SRA warning notice and consider when the last time was that you trained your staff. Have a look at your procedures for client account receipts and payments. And reach out to your MHA contacts if you have any technical questions that you want to discuss."
