Can a law firm hold a client's money when it is not doing legal work for them? Rule 3.3 and the banking facility ban, worked through one sale

No. Rule 3.3 of the SRA Accounts Rules says a firm must not use a client account to provide banking facilities to clients or third parties, and that payments into, and transfers or withdrawals from, a client account must be in respect of regulated services the firm is delivering. Having a retainer with the client is not enough. The money has to have a proper connection to the legal work.

What the rule is for

The SRA's warning notice on the subject, last updated on 1 March 2023, says the rule reflects decisions of the Solicitors Disciplinary Tribunal that running a banking facility is not a proper part of a solicitor's practice.

It gives the risks. Money moved through a client account avoids the checks a bank applies to its own customers, which helps anyone laundering money or hiding assets in a dispute. A client facing a winding-up petition may want payments made that its bank would refuse. The notice adds that it is no defence that nothing was in fact laundered.

The test: a proper connection

The notice says a firm must only receive funds where there is a proper connection between the receipt and the regulated services it delivers. An underlying transaction is not enough if the firm is not acting on it. Ordinary conveyancing, estates and formal trusts are untouched, and the notice gives the estate agent's fee on a sale as a usual and proper payment.

It asks the firm to put two questions to itself throughout the matter:

1. Why am I being asked to receive this money, and for what purpose?
2. Why can the client not make or receive this payment directly?

The client's convenience is not a legitimate answer to the second question. Nor is the lack of a UK bank account. The notice names large payments to family members or to companies overseas as risk factors, and it closes off an old habit: holding funds to pay a long-standing private client's routine outgoings is now a breach of rule 3.3.

Time matters too. Rule 2.5 requires client money to go back promptly once there is no proper reason to hold it, and the notice says money kept after completion risks a breach of both rules. That is also how residual balances begin.

One sale, seven payments

A firm acts for a client selling her house for £385,000. Completion is on Friday 6 November 2026.

The sum: £385,000 less £148,720, £5,544 and £1,740 leaves £228,996.

The client then asks the firm to keep the balance until she buys again in the spring, and in the meantime to pay three things for her.

Those three come to £49,550, which would leave £179,446 in client account for about five months.

None of it passes the test. The firm is not acting on the building work, the school fees or the gift, and she can pay each from her own account once she has the money. It has no instruction on a purchase, so nothing it is doing requires it to hold the rest until the spring.

The answer changes if the facts do. If the firm were already instructed on her purchase and the money was needed to complete it, holding it would be connected to work in hand. A house she has not yet found is not that.

So the firm pays the first three, sends £228,996 to her own account on completion and writes to say why it cannot do the rest.

What the SRA's case studies allow and refuse

The case studies published with the notice give the SRA's view of each.

What a small firm puts in place

1. A term in the terms of business. The notice suggests saying the firm will account only to the client and not to a third party, even if asked. The client care letter checklist is the place to add it.
2. A bank account on file at the start. The SRA expects the firm to confirm at the outset that the client has an account to receive money. For a client with none, the notice points to a third party managed account, which rule 11.1 permits.
3. A reason on the ledger. The SRA's guidance on accounting records asks for systems that keep clients informed when funds are retained at the end of a matter.
4. A second look at the money. A request to route payments through the firm is a reason to reread the source of funds evidence.

What a breach leads to

The notice says a breach of rule 3.3 is serious in itself, and that failing to have proper regard to the notice is likely to lead to disciplinary action. The SRA's guidance to reporting accountants lists a client account used as a banking facility among the serious factors likely to lead to a qualified report, which goes to the SRA; our guide to whether a firm needs an accountant's report covers that.

The COFA or a partner decides whether money may be held or paid, and reviews and signs any letter a tool drafts about it. This page is general information, not legal advice.