RESEARCH: Blog on accuracies when relying on GenAI for technical information.
The ILFM is the go-to professional body for business support roles in legal finance, compliance and practice management and so we urge members and those in legal roles to come to us for accuracy on certain queries in our sector, especially on the subject of client monies and SRA Accounts Rules.
We did a ChatGPT test and asked the GenAI platform the following question:
“What are the SRA’s rules on client accounts and interest earned for law firms in England?”
Want to know its reply?
IMPORTANT NOTE: Do NOT use the answers in green. Please scroll down to read the correct answers!
“The Solicitors Regulation Authority (SRA) in England has specific rules regarding client accounts and interest earned by law firms. Here are some key points:
1. **Segregation of Client Money**: Law firms must keep client money separate from the firm's own money. Client money should be held in a separate client account. CORRECT
2. **Interest on Client Money**: Interest earned on client money should generally belong to the client. However, if the amount of interest is small or if it's impractical to calculate and distribute interest to individual clients, the firm may retain it. INCORRECT
3. **Notification and Consent**: Before earning interest on client money, firms must inform clients of how their money will be handled and obtain their consent in writing. This usually involves disclosing the type of account where the money will be held and how interest will be managed. INCORRECT
4. **Prompt Transfer of Interest**: If interest is to be retained by the firm, it should be transferred promptly to the firm's office account or another appropriate account. INCORRECT
5. **Record-Keeping**: Firms must maintain accurate records of client money transactions, including any interest earned or retained.
6. **Compliance**: Law firms are responsible for complying with SRA Accounts Rules, which outline the requirements for handling client money and interest earned.”
The above will be easily accessible on ChatGPT, which is very concerning.
HUMAN AND TRUSTWORTHY ANSWERS
We asked our Head of Professional Development, Karen Edwards the same question and you will be relieved to know that her answers are correct and in line with the SRA’s Accounts Rules (as at the time of writing!).
Segregation of Client Money:
Regulated law firms hold two accounts simultaneously, the Office Account and the Client Account. Law firms must keep client money separate from their business accounts.
Interest on Client Money:
Interest earned on client money belongs to the firm and should therefore credited to the business account as it represents business money. However, under Rule 7 of the SRA Accounts Rules, firms are required to account to clients or third parties for a fair sum of interest on any client money held (7.1) unless a different arrangement is agreed with the client in or third party in writing (7.2).
Notification and Consent:
Regarding Rule 7.2 mentioned above, firms must provide sufficient information to the client to enable them to give informed consent to a different arrangement to that required under Rule 7.1.
Prompt Transfer of Interest:
As interest earned on client money belongs to the firm, it should be credited by the banking institution and kept in the business account to comply with the rule of separation under 4.1. If there are circumstances where a banking institution will only credit this interest to client account, for whatever reason, it should be transferred to the business account promptly, in line with a firm’s policy to ensure compliance with rule 4.1.
Record-Keeping:
Rule 8 of the SRA Accounts Rules governs the requirement for firms to have in place client accounting systems and controls, in particular, rule 8.1 which states that firms need to keep and maintain accurate, contemporaneous and chronological records to record in client ledgers all receipts and payments which are client money on the client side of the ledger - this will include interest which has been accounted for. As interest should be credited to the firm’s business account, this should then be transferred from the business to office account as client money.
Rule 13 requires firms to store all accounting records securely and retain them for at least six years.
Compliance:
Law firms authorised by the SRA who receive or deal with money belonging to clients, including trust money or money held of behalf of third parties, are required to comply with the SRA Accounts Rules. The Rules apply to all SRA-regulated firms, including all those who manage or work within them. The firm’s managers are jointly and severally responsible for ensuring the firm, its managers and employees comply with the Accounts Rules.
Summary of ChatGPT & GenAi versus the Human Touch
A technical blog with human answers from an organisation with real people! Let’s hope that Google indexes this blog and it’s picked up from Generative AI platforms!
If in doubt, go to the SOURCE for correct information. In this case, it’s the SRA, or us of course!
Our online and live SRA training sessions are perfect for anyone in the legal profession to keep up to date with. See our TRAINING SCHEDULE HERE.
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