Period of Recognised Training / Training Contract Financial, Accounts and Risk Management Syllabus

Financial, Accounts and Risk Management syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Financial, Accounts and Risk Management in Period of Recognised Training / Training Contract, not a summary of it.

1. 1

   SRA Accounts Rules

   4 topics

   • Distinction between client money and office money
     • Definition of client money
     • Holding and handling client money
   • Client account operation and reconciliations
   • Withdrawals from client account
   • Accountants' reports and breaches
2. 2

   Anti-Money Laundering and Compliance

   4 topics

   • Money Laundering Regulations and obligations
     • Customer due diligence and KYC
     • Enhanced due diligence and risk assessment
   • Suspicious activity reporting
     • Role of the MLRO
     • Tipping off and the regulated sector
   • Proceeds of Crime Act obligations
   • Sanctions and financial crime awareness
3. 3

   Risk and Practice Management

   4 topics

   • Professional indemnity insurance
   • Identifying and managing risk in transactions
   • Data protection and UK GDPR in practice
   • Cybersecurity and information governance
4. 4

   Costs and Funding

   3 topics

   • Costs information and client funding options
     • Conditional fee and damages-based agreements
     • Legal aid eligibility and scope
   • Costs budgeting and assessment
   • Recovery of costs between parties

Financial, Accounts and Risk Management flashcards for Period of Recognised Training / Training Contract

21 of 52 cards from the Financial, Accounts and Risk Management deck — real questions with worked answers.

1. What is the core distinction between 'client money' and 'office money' under the SRA Accounts Rules?

   Client money is money held or received by a firm relating to regulated services delivered to a client, on behalf of a third party, as trustee, or as a holder of a specified office (e.g. trustee, donee of power of attorney). Office money is the firm's own money belonging to the practice (e.g. fees once billed, money to cover the firm's costs). The two must be kept separate.

2. List the four categories of 'client money' under SRA Accounts Rule 2.1.

   Money held or received: (a) relating to regulated services delivered to a client; (b) on behalf of a third party in connection with regulated services (e.g. a counterparty's stake money); (c) as a trustee or holder of a specified office or appointment; and (d) in respect of the firm's fees and unpaid disbursements before delivery of a bill.

3. Into what type of account must client money be paid 'promptly', and what is its key feature?

   It must be paid promptly into a client account, which is an account at a bank or building society in England and Wales, in the firm's name, that includes the word 'client' in its title. It keeps client money separate from the firm's own money.

4. Under SRA Accounts Rule 4.3, what is the general prohibition regarding use of one client's money for another?

   A firm must not use a client's money for the benefit of another client (or third party) unless permitted by law or with the client's prior written authority. Each client's money is held for that client; cross-funding is prohibited.

5. What is the exception allowing a firm NOT to hold client money in a client account where only payments to/from the Legal Aid Agency are involved?

   Rule 2.2: a firm does not have to pay LAA regulated services money into a client account if it is for its fees, and the only client money is money received from the LAA for the firm's costs. This avoids running a client account solely for legal aid receipts.

6. What does it mean to operate the 'client money exemption' under Rule 2.2, and what must a firm tell clients?

   A firm may operate without a client account if the only client money it handles falls within limited categories (e.g. it does not hold money other than for fees/disbursements already incurred). It must inform clients in writing if it does not hold a client account.

7. How frequently must a firm reconcile its client account, and what three items must agree on a reconciliation?

   At least every five weeks (Rule 8.3). The reconciliation must compare: (1) the cash book balance of client money held, (2) the total of the client ledger balances, and (3) the bank/building society statement balance for the client account. Differences must be investigated and corrected promptly.

8. Under Rule 8.1, what records must a firm keep for client money?

   Accurate, contemporaneous and chronological records: a client ledger account for each client showing all receipts and payments separately from office money, a cash book showing a running total, and records to show all client money dealt with. Records must be kept for at least six years.

9. What are the permitted circumstances for a withdrawal from a client account under SRA Accounts Rule 5.1?

   Client money may only be withdrawn: (a) for the purpose for which it is being held; (b) following receipt of instructions from the client/third party for whom it is held; or (c) on the SRA's prior written authorisation or by court order. The withdrawal must not exceed the money held for that client.

10. Can a firm withdraw more from the client account than it holds for a particular client? What is the consequence if it does?

    No. A withdrawal must not exceed the money held on behalf of that client (Rule 5.3). Doing so creates a shortfall (overdrawn client ledger), which uses other clients' money, is a breach, and the shortfall must be replaced promptly from the firm's own money.

11. When transferring money from client account to office account in payment of fees, what condition must first be satisfied?

    The firm must have delivered a bill of costs (or other written notification of the costs) to the client. Only money in respect of those billed costs may be transferred, and it must be transferred within 14 days of the funds being earmarked as office money.

12. What must a firm do with money it holds that becomes office money (e.g. after billing) but remains in the client account?

    It must be transferred out of the client account into the office account promptly (within 14 days). Leaving office money in client account beyond a brief period breaches Rule 4.3 (no improper use of client account).

13. Under Rule 12, when must a firm obtain an Accountant's Report on its client account?

    A firm that has, at any time in the accounting period, held or received client money must obtain an accountant's report within six months of the end of the accounting period. The report is on whether the firm has complied with the SRA Accounts Rules.

14. When must an Accountant's Report be delivered to the SRA, and when is delivery NOT required?

    It must be delivered to the SRA within six months of the period end only if it is 'qualified' (shows a failure to comply that puts client money at risk). An unqualified report must be obtained but need not be sent to the SRA.

15. What is the de minimis exemption from obtaining an Accountant's Report?

    Rule 12.2: a firm is exempt if all client money held/received in the period totals an average balance of not more than £10,000 and a maximum balance of not more than £250,000, or it is operated only as a legal aid practice receiving LAA money.

16. What is a 'qualified' Accountant's Report and what should a firm do upon receiving one?

    A report is qualified where the accountant identifies a failure to comply with the rules that gives rise to a significant risk to client money. The firm must deliver it to the SRA within six months of the accounting period end and should remedy the underlying breach.

17. Distinguish a breach of the Accounts Rules that must be reported from one that need not.

    A serious breach (or set of breaches), or one that gives rise to a significant risk to client money or the public, must be reported promptly to the SRA. Minor, isolated, promptly-rectified breaches generally need only be recorded internally and may surface in the accountant's report rather than a standalone report.

18. Which Regulations principally govern anti-money-laundering obligations for UK law firms, and what 2019 amendment expanded them?

    The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017), as amended by the Money Laundering and Terrorist Financing (Amendment) Regulations 2019, which transposed the EU's 5th Money Laundering Directive.

19. What are the 'three stages' of money laundering?

    (1) Placement — introducing criminal proceeds into the financial system; (2) Layering — moving the money through transactions to disguise its origin; (3) Integration — returning the laundered money to the criminal as apparently legitimate funds.

20. What is Customer Due Diligence (CDD) under MLR 2017 and what does standard CDD require?

    CDD is the process of identifying and verifying the client. Standard CDD requires: identifying the client and verifying identity from reliable independent documents/data; identifying any beneficial owner and verifying their identity; and obtaining information on the purpose and intended nature of the business relationship.

21. When must Enhanced Due Diligence (EDD) be applied under MLR 2017?

    EDD applies in higher-risk situations: where there is a high risk of money laundering/terrorist financing, dealings with a Politically Exposed Person (PEP), the client is established in a high-risk third country, the transaction is complex/unusually large, or there is no apparent economic/legal purpose.

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