Client money bank accounts: why professional firms must separate other people's money

Client money is not ordinary business cash. Where a regulated profession requires client funds to be kept separately, the account exists to protect money belonging to clients or third parties from the firm's own operating finances. The exact rules depend on the profession, so the banking setup must follow the relevant regulator rather than a generic small-business template.

Client money should not become working capital for the firm

The clearest example comes from the Solicitors Regulation Authority. Its Accounts Rules require regulated firms to keep client money separate from money belonging to the authorised body and, subject to limited exceptions, to pay client money promptly into a client account. The principle is simple even beyond legal services: money held for somebody else should not be treated as the firm's cash.

A firm holding £300,000 for clients should not look at its bank dashboard and conclude that it has £300,000 available for payroll, rent or expansion. The accounting system must distinguish beneficial ownership so management sees office cash separately from money held on behalf of others.

The exact banking requirement depends on the professional or regulatory regime

Solicitors, estate agents, letting agents, investment firms and other professional businesses can face different client-money rules. Do not copy another profession's banking process simply because both use the phrase client account. Check the regulator, membership body, legislation and insurance or client-money-protection requirements that apply to the specific business.

This matters because some regimes prescribe where the account can be held, how it is named, how interest is handled and what reconciliations are required. The bank may also have a specialist client-account product and may refuse to treat an ordinary business current account as suitable for regulated client money.

For solicitors, the account name must distinguish client funds from the firm's own account

The current SRA Accounts Rules say a solicitor client account must be maintained at a bank or building society in England and Wales and the name must include the authorised body's name and the word "client". The rules also state that the account must not be used as a general banking facility for clients or third parties.

That distinction should be visible operationally. Staff should know which account receives office income and which receives client funds. Bank templates, accounting feeds and payment approvals should use clear labels so a user does not accidentally select the client account for an ordinary supplier payment.

Only release client money for a permitted purpose and from the correct client balance

The SRA rules require withdrawals from client account to be for the purpose for which the money is held, following proper instructions or another permitted basis. They also require sufficient money to be held for that particular client or third party before a withdrawal is made.

That client-level control is important. A pooled client account can hold money for many clients, but one client's balance should not fund another client's transaction. The accounting ledger must therefore show the amount held for each client even though the bank itself displays one total balance.

Run client-account reconciliation as a separate control, not an ordinary month-end task

Client-money systems should reconcile the bank balance, the client ledger and the total of individual client balances. Differences need prompt investigation. The SRA Accounts Rules include requirements around bank statements and reconciliations, and professional rules can impose their own review frequency and evidence standards.

Separate preparation and review where practical. A person who can create and release client payments should not also be the only person checking the reconciliation. Large unexplained differences, dormant client balances and money held after a matter has ended all deserve escalation.

Some client-money trusts can be excluded from Trust Registration Service registration, but only under defined conditions

HMRC's Trust Registration Service Manual says certain express trusts created by relevant supervised professionals for holding client money, securities or other assets can be excluded from registration when the statutory conditions are met. It also identifies certain escrow and professional-service arrangements that can fall within exclusions.

That does not mean every account labelled "client account" is automatically outside trust registration or KYC requirements. The professional firm should identify the legal basis on which it holds the money and provide the bank with accurate information about beneficial ownership and account purpose. Where the structure is unclear, obtain specialist legal or tax advice rather than assuming the account label determines the result.