Rule 11 and opening your Client Account

I was pondering (as you do) whether the profession was ready for ABS licensing and client accounts. Back in February we were all told Rule 11 meant we had to have our client accounts open and ready for 2015. See my post at the time.

I was pondering because I happened to notice  a few days ago, on the SRA Question of Ethics page, a note about the operation of client accounts and how evil it was to have the interest paid into the client account because the interest on a general account is office money (at least in SRA land it is - IPREG may have other ideas but I doubt it). In any event the interest on the overpaid sum of £35 that came from an Australian client and which would have been lost in exchange rate differences and banking fees if I had paid it back was going into my client account. Oh woe! Now don't worry that client account has always been IPREG regulated so I wasn't about to get hung drawn and quartered as promised by the helpful Ethics police at the SRA. Even so I got in touch with my Bank (Barclays fortunately not a Building Society) and they have made me honest by directing the interest to my office account. OK so if you have set up your client account in readiness you too might want to check where the interest will go.

Meanwhile the Bar Standards Board have started an escrow service BARCO regulated by the Financial Conduct Authority. If you use that they charge you 1% but it seems to be capped at £250 per transaction. Presumably you have to pay that out of your funds rather than the client's so I'm not thinking of using BARCO myself for that overpaid £35. If you charged the £250 to the client would that be "protecting client money" - the tenth SRA principle.?

Next I heard from ITMA via their Chief Executive's Bulletin today (4 December 2014):

Unfortunately the current banking practice only allows true client accounts to be opened by a profession included in Schedule 3 of the Money Laundering Regulations 2007 and currently the IP profession is not included in this schedule making it difficult for those bound by the new rules to comply. The new Rules are due to come into force on 1st January 2015 and we have written, together with CIPA, to IPReg to request they delay bringing into force the new rules until it is possible for our relevant members to fully comply. We will advise as soon as we have any further information on this matter.

Its very easy to blame "banking practice" and I would be interested if others have found difficulty with the mainstream banks. I didn't and all litigators have needed to have client accounts for a while.

I was surprised to hear that postponement of the rules was being requested on my behalf. The bar has managed to prepare itself and given that we nearly always deal with business clients we should be able to manage a client account or credit risk  by now. Moreover delaying the new regime would presumably knock back those who are ABS and want to offer more co-ordinated business and IP advice to their clients.

Anybody know more about this? Please comment

Client Accounts for All

The new IPReg rule 11 that will come into force on 1 January 2015 requires all regulated patent and trade

mark agents to have a client account or ensure they never handle client money.

Here is the current rule

Rule 11 – Financial Matters
Regulated persons shall ensure that their professional finances are managed appropriately.

Here is the amended rule

Rule 11 – Financial Matters
Regulated persons shall ensure that their professional finances are managed appropriately.
Every regulated person must ensure that they have in place appropriate controls, procedure and records and also sufficient and appropriately qualified staff and/or other resources to ensure that clients always receive a high standard of service in relation to the management of client money.
In the event that a regulated person receives money from a client, other than by way of payment of fees or disbursements incurred but including money on account for fees or disbursements paid up front, they should ensure that such money is held on trust for the client in an account which is entirely separate from the regulated person’s or the firm’s professional business accounts In the event that money is held on trust for a client the registered person’s terms of business should deal with the issue of the ownership of the interest earned on the money held on behalf of a client.
Every regulated person must ensure they comply with all legislation pertaining to “money laundering” and “proceeds of crime”

CIPA have already run one webinar reported at Page 49 of the January 2014 CIPA Journal  and another is on its way to scare you. Its on the 4 March starting at 12:30 and for a mere £30 plus VAT or £45 if you are not a CIPA member you can book it online. It is also supported by ITMA and hopefully trademark agents qualify for the £30 rate.

Having come from practice as a solicitor I opened a client account early on. It did take some time to get the bank to understand that it must be designated a client account and they could not raid it for arbitrary charges, but that is all sorted now. Post 2008, the banks are a bit better at recognising the need for client account designation. The mainstream banks now seem to be more up front about their offerings. Here is Lloyds and here is Barclays. For most patent and trademark agents you want to make sure it stays open with a zero balance. The client accounts of property solicitors were always attractive to banks, but I suspect that for most of the IPReg regulated, the odd payment  of €300 costs may be the best it sees.

The one thing that the rule makes clear is that if you collect your PCT nationalisation fees or the anticipated costs of the foreign filing programme for a trade mark client in advance it should go into the client account. If you don't have a lot of working capital or you don't trust the client, this advance collection is necessary. When practicing as a solicitor, I found the provisions under the then Law Society rules about agreed fees very helpful. These are still recognised by the SRA see their Rule 17.5 

A payment for an agreed fee must be paid into an office account. An "agreed fee" is one that is fixed - not a fee that can be varied upwards, nor a fee that is dependent on the transaction being completed. An agreed fee must be evidenced in writing.

Therefore if you specify a fixed fee for the service and bill it up front, it does not need to enter the client account. If you want to do a final accounting, then its provide the credit and bill afterwards or ask for a payment into your client account.

The obvious thing to say in your terms and conditions is that interest is not paid and any interest earned is yours.

The one area where it would be helpful to have some guidance from IPREG is what about refunds made by OHIM and the EPO direct into your deposit account and therefore mixed with office money. It is a matter of British competitiveness that we should not be disadvantaged relative to our European competitors. Up till now I have felt that IPREG regulation saves me from anguishing about this issue too much. Can we make it clear in our terms of business that such refunds are refundable only at our discretion. For OHIM refunds, the amount is €350 but for abandoned EPO applications that have gone un-renewed the amounts can be significant. If the non- renewal is because the foreign start up has gone into administration, the  client may be another law firm who is not too keen to receive  difficult to allocate funds.

Hopefully most firms who have not already got a client account will find it possible to open one during 2014.

Another requirement is that we must have  "sufficient and appropriately qualified staff" . Is that meant to rule out solo practitioners. Lets hope not!