The Clients’ Money Regulations define a “client bank account is an account at a bank in the name of the firm separate from other accounts of the firm which may be either a general account or an account designated by the name of a specific client or by a number or letters allocated to that account and which, in all cases, includes the word client in its title.”
Regulation 8A requires “a client bank account should only be used for receiving or making payments which relate to accountancy services which the firm is performing, has performed or has been engaged to perform, for the client. …”
We have found examples of member firms that are either associated with each other or under common control, using client money accounts in the name of only one of the firms. For example, member firms A, B, C are associated or under common control. A, B and C each provide services which require client money bank accounts to handle client money in accordance with the Clients’ Money Regulations. However, the only client bank accounts are in the name of firm A. Firms B and C use Firm A’s client money bank accounts whenever the need to hold clients’ money arises. This is contrary to the Clients’ Money Regulations because Firm A’s client money bank account is being used for entities that are not their clients and for funds in relation to services not performed by A.
It is necessary for client money to be held in a client money bank account to provide protection for the funds in the event of the accountancy firm becoming insolvent. This is because a clients’ money bank account has no right of set off for the firm that is operating it, meaning that the funds in the client money bank account can’t be used to service the debts of the accountancy firm. Therefore, if funds for non-clients are held in the client money bank account when the firm becomes insolvent then these funds are not protected and could be used to service the debts of the accountancy firm.
Practically, issues may also arise if the linked entities cease to be associated with each other, particularly in circumstances that may be contentious, resulting in difficulties or delays in the maintenance of the client’s funds.
To ensure that firms remain in compliance with the Clients’ Money Regulations it is necessary for each entity, regardless of how they may be associated or under common control, to maintain a client account in their own name to be used solely for their own clients
Resources