An amendment in the Courts and Legal Services Act 1990 was intended to put this into effect. However, the drafting was deficient and the position (up until the statutory amendment contained in Schedule 16, paragraph 33 to the Legal Services Act 2007 came into force on 31 March 2009) was that money subject to a controlled trust (where a solicitor was a sole trustee or co-trustee with one or more of his partners or employees) remained outside the scope of rules made under section 33. Money subject to a non-controlled trust i.e. where there were lay trustees involved, fell within the scope of the interest provisions in the 1998 Accounts Rules.

On 31 March 2009, the concept of a controlled trust was abolished, and the Legal Services Act gave much more flexible rule making powers regarding interest on money held for clients. With this came the removal of any distinction between those categories of money previously defined as “controlled trust” and “client money”. Therefore solicitors are now permitted, under the Solicitor’s Accounts Rules, to include trust money within their client bank account and accept the direct and indirect benefits which are often received through holding a client bank account.

Whilst it is recognised that a solicitor who is a trustee, has to have regard for their legal duties (and rule 1.04 of the Solicitors’ Code of Conduct 2007 states that there is a duty to act in the best interests of their clients) the Institute still has its concerns that a solicitor’s duty as a trustee could be overlooked.

A solicitor holding client money who is also a trustee will still need to give regard to:
(a) the general duty under rule 25 (1) of the SAR to aim to obtain a reasonable rate of interest on money held in a separate designated client account, and to pay a fair sum in lieu of interest on money held in a general client account - this may mean considering moving the trust's funds to a different client account or to a different bank or building society; and
(b) his or her general obligations under trust law in relation to the holding of the trust's money and its treatment generally, e.g. is it appropriate for the trust's money to be held in a solicitor's client account?; should it be invested in the purchase of assets other than money?

The Institute’s fear is the profession may read the abolishment of controlled trusts without any further consideration. In addition to this finance staff are habitually relied upon to identify different types of money, often lacking the legal expertise to ensure the practice upholds their legal duty as a trustee. On this basis, our advice to our members where additional benefits, indirect or direct, are received (i.e. reduced office account charges, personal free banking, interest free loans etc) is to continue to separate trust money from their client bank accounts.

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