Special Client Account Arrangements
Solicitors Accounts > Special Client Account Arrangements
Most SQE1 candidates incorrectly assume all client money must go into the general pooled client account. They miss that separate designated accounts and third-party managed accounts (TPMAs) are valid alternatives with different regulatory treatment.
What Is Special Client Account Arrangements in SQE1?
Special Client Account Arrangements covers alternative ways to hold and manage client money beyond the standard general pooled client account. This topic includes separate designated accounts (opened for specific clients, especially large sums), joint accounts (held jointly by firm and client), and third-party managed accounts or TPMAs (held and managed by external providers). You need to understand that separate designated accounts are still client accounts subject to the full Accounts Rules, but they offer advantages like clear interest attribution. Joint accounts do not need to go into the firm's client account (but the firm still has duties to the client). TPMAs are managed by third parties (not the firm), so the Accounts Rules do not apply directly to the TPMA itself, but the firm retains obligations to ensure the arrangement is appropriate and properly disclosed. For SQE1, the main trap is thinking all client money must be in a general pooled account; examiners test whether you recognize alternative arrangements.
Key Principles for SQE1
- Separate designated accounts are permissible: These are still client accounts subject to the full Accounts Rules, but they hold money for a specific client or matter, allowing clear interest attribution.
- General pooled account: Holds money for multiple clients. The firm uses client ledgers to track how much is held for each client. Reconciliation compares bank balance to total ledger balances.
- Joint accounts (Rule 9): Held jointly by firm and client (or another party). Not required to be in firm's client account, but firm must record its interest and comply with duties to the client.
- Third-party managed accounts—TPMAs (Rule 11): Held and managed by external provider (not the firm). Accounts Rules do not apply directly to the TPMA itself, but firm must take reasonable steps to ensure the provider is appropriate, the client is informed, and money is safeguarded.
Exam tip
Separate designated client accounts are permissible alternatives to a general pooled account — they are still client accounts and the SRA Accounts Rules apply in full. Joint accounts (held with client or third party) are NOT required to go into the firm's client account, but the firm must record its interest and comply with duties to the client. Third-party managed accounts (TPMAs) are managed by the third party (not the firm), so the Accounts Rules do not apply directly to the TPMA itself, but the firm retains obligations to ensure the arrangement is appropriate and disclose it to the client. All arrangements require proper accounting records and compliance with duties to the client.
How This Appears in SQE1 Questions
SQE1 questions may describe a situation where a firm holds a large sum for a client and ask which type of account arrangement is appropriate. The trap is assuming that all client money must go into the general pooled client account - separate designated accounts and TPMAs are permissible alternatives. Questions may also test whether the Accounts Rules apply to a TPMA (they do not apply directly to the account itself, but the firm retains obligations to the client).
Quick Example Scenario
A firm is holding £2 million for a client pending completion of a commercial property transaction. The client asks the firm to hold the money in a separate account so that interest earned is attributable solely to that client. What should the firm do? The firm should open a separate designated client account for that client. The money remains client money and the Accounts Rules continue to apply. The advantage is that interest earned on the separate account can be readily attributed to the client without the complications of calculating interest on a pooled account.
Common Mistakes Students Make
- Assuming all client money must be held in a single pooled client account - separate designated accounts and TPMAs are permitted.
- Confusing a separate designated client account (still a client account, still subject to the Accounts Rules) with a TPMA (not held by the firm, Accounts Rules do not apply directly).
- Forgetting that joint account money does not need to be paid into the firm's client account - but the firm still has duties regarding the arrangement.
- Overlooking the requirement to maintain accounting records for all arrangements, including separate designated accounts.
Quick Summary
- General client account: pooled account holding money for multiple clients; firm must identify through client ledgers how much held for each client
- Separate designated client account: client account opened for specific client or matter; often used for large sums or client's request for separate account (e.g., for higher interest); same Accounts Rules apply
- Rule 9 Joint accounts: account held jointly by firm and client (or another party); firm not required to pay into client account, but must record interest in its books and comply with duties to client
- Rule 11 Third-party managed accounts (TPMAs): account held and managed by third-party provider (not firm); firm does not hold money, so Accounts Rules do not apply directly to TPMA itself
- TPMA conditions: firm must take reasonable steps to ensure provider is appropriate, client is informed, money is safeguarded
- Client's instructions: where client gives specific instructions about how money should be held (separate account or TPMA), firm should comply where reasonably practicable
- Accounting records: firm must maintain proper records for separate designated accounts and joint accounts showing client money and transactions
- Joint accounts do not need to be in same bank as general client account; no prior SRA approval needed
Want to test this now? Try a few SQE1-style questions below before moving on.
Test Yourself
Test yourself
Quick check questions based on this article.
Question 1
Scenario
A solicitor is appointed as a joint signatory on a bank account belonging to an elderly client. The client's daughter is the other signatory. The account is in the client's own name at a high street bank and contains £95,000 in savings. The client has given the solicitor authority to operate the account to pay care home fees and other living expenses. The client lacks capacity to manage the account independently but has not lost capacity entirely. The solicitor receives an invoice from the client's care home for £4,200 for the current quarter. The solicitor authorises the payment from the client's bank account. The solicitor's firm does not hold any money for the client in the firm's client account. The firm's trainee asks whether the SRA Accounts Rules apply to the client's own bank account, given that the solicitor is a signatory. The trainee also queries whether the solicitor needs to maintain a client ledger for the transactions on this account. The firm's compliance officer notes that the account is not held in the firm's name and that the firm does not hold any client money in connection with this arrangement.
Which of the following best describes the application of the SRA Accounts Rules to the client's bank account?
Question 2
Scenario
A firm is considering using a third-party managed account as an alternative to operating its own client account. The firm's managing partner has read that third-party managed accounts allow firms to avoid holding client money directly. The managing partner discusses the proposal with the firm's compliance officer. The compliance officer explains that the use of a third-party managed account is subject to specific requirements under the SRA Accounts Rules. The managing partner asks whether the firm would still need to maintain its own client account if it uses a third-party managed account. The managing partner also queries whether the firm would still be subject to the requirement to obtain an accountant's report. The firm currently holds client money for approximately 200 active matters. The compliance officer raises concerns about whether all clients would consent to the use of a third-party managed account. A partner at the firm suggests that the use of a third-party managed account would completely remove the firm from all obligations under the SRA Accounts Rules, making the arrangement attractive from a compliance perspective.
Which of the following correctly describes the effect of using a third-party managed account?
Question 3
Scenario
A solicitor acts for a client, Grace, in a personal injury claim. Grace receives a settlement payment of £75,000. Grace asks the solicitor to pay the funds into Grace's own savings account at her bank and to manage the account on her behalf while she recovers from surgery. The solicitor agrees and sets up the arrangement. The solicitor pays all of Grace's medical expenses from the account over the following weeks. The solicitor keeps a detailed record of all payments made. Grace's neighbour, who is aware of the arrangement, contacts the solicitor and asks whether the solicitor can also manage her savings account. The neighbour does not have a retainer with the solicitor's firm. The solicitor is not currently instructed by the neighbour on any matter.
Which of the following best describes whether the solicitor may agree to manage the neighbour's savings account?
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