Legal Professionals holding funds “on Trust” with Banks

 In Trusts

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Legal Professionals can hold funds “on trust” in a number of different ways, with each method achieving segregation of funds in a different way depending on the business requirements and industry regulations.

There are 3 different product types that are used by banks to achieve segregation when funds are held on Trust

  1. Standard Business Current Accounts: Segregation is achieved by holding funds under an entirely separate entity (i.e. Trust), which operates as a separate banking relationship from the trustees as individuals. The Legal Professional could be nominated as a Trustee (or equivalent), or act as Agent to the Trustees who would instruct the Bank to manage the funds.
  2. Client Money Accounts Products: These accounts can be either undesignated to pool client funds or designated in the name of an individual underlying client i.e. an individual trust. Full control of the funds resides with the Legal Professional opening the account as opposed to the trustees, but funds are segregated on bank systems from the Legal firm itself.
  3. Segregated Funds Accounts: Operationally aligned to the functionality of Client money products, Segregated Funds Accounts support all types of entities that have a recognised need to separate funds from their business operational accounts – but which don’t fall under the definitions of “client monies” as per the FCA CASS rules or SRA rules.

In addition to the above, Legal Professionals can be appointed to manage the general funds of an individual on an ongoing basis, such as becoming a court appointed deputy for that individual. This structure will be explored in further detail next month when we will explore deputyship structures.

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Account Opening

Due to the more complex structure that is associated with funds held on Trust (both legally and from an account control perspective), some institutions can find requests for accounts for this purpose challenging to fulfil.  It is important that Legal firms identify and partner with banks which have experienced and knowledgeable people who can support the needs of the legal & professional sector and understand their banking requirements. Once these needs are understood the correct product should be easy to identify and support.

As part of the management of funds held on Trust, it may be appropriate to manage the funds through virtual accounts which enable the practitioner to segregate and reconcile deposits within a single undesignated client bank account, or other account product. The online accessed software will automatically allocate inward payments to virtual accounts to support your reconciliation of funds.

Legal Professionals holding funds “on Trust” with Banks

Waiver of banking rights

In many regulated sectors banks are required to waive their normal rights over funds and confirm in writing that these funds are segregated. Clients can obtain these letters of waiver whether funds are held on a segregated funds account, a client money account or where an entirely separate entity and banking relationship has been established.  Industry feedback has often been that these letters can be time consuming and difficult to obtain.

Some banks are responding with improved issuance of these letters. Lloyds Bank, for example, has a dedicated team to support the issuance of these letters waiving the banks right to offset amounts due to them against funds in these accounts. Any clients who hold client money or Segregated Funds Accounts can now contact the team via email (acknowledgement_letters@lloydsbanking.com) and request a letter confirming segregation of funds with a commitment that the letter will be received by secure email within two working days.

Lloyds Bank are committed to supporting the UK legal sector and continue to be the only bank to offer Lexcel Trained relationships managers supported by teams that understand the Solicitors Accounts Rules. To find out how Lloyds Bank can support you please speak to your local relationship manager or contact us at lloydsbank.com/solicitors

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