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Code of Practice

Chapter 9: Accounts

Notaries are required to comply with the Accounts Rules, the Accounts (Deposit Interest) Rules and the Trust Accounts Rules.  There are further rules relating to accounts in the Practice Rules and the Inspections Regulations.  This Chapter goes through the main points a notary needs to be aware of in order to comply with the various accounts rules that may apply to the notary’s practice.

The Accounts Rules

These rules distinguish between client’s money, trust money and other monies.  Any notary holding or receiving client’s money is bound by clearly defined rules and requirements.  It is vital that the notary considers whether any money held or received as part of the notarial practice falls within the definition of client’s money and, significantly, whether the exceptions in the definition of client’s money and the treatment of certain types of client’s money may remove the need to operate a client account.

Client’s money and client accounts

These rules set out a definition of client’s money:

money held or received by a notary on account of a person for whom he is acting in relation to the holding or receipt of such money either as a notary or, in connection with his practice as a notary, as agent, bailee, stakeholder or in any other capacity; provided that the expression “client’s money” shall not include-

(a) money held or received on account of the trustees of a trust of which the notary is a notary-trustee; or

(b) money to which the only person entitled is the notary himself or, in the case of a firm of notaries, one or more of the partners in the notaries firm

trust money is also defined within these rules as:

money held or received by a notary which is not client’s money and which is subject to a trust of which the notary is a trustee whether or not he is a notary-trustee of such trust;

If you are required to have a client account because you hold client’s money, then the rules governing the operation of a client account are very similar to those governing solicitors.

Paying money into a client account

Accounts Rule 3 requires (subject to Accounts Rule 9) any notary holding or receiving client’s money to pay that money without delay into a client account.  A notary may hold more than one client account if the notary so chooses.

Accounts Rule 4 permits the following other monies to be paid into a client account in addition to client’s money:

  • trust money,
  • Money belonging to the notary deposited in order to open or maintain the account,
  • Money to replace any sums withdrawn in error [Accounts Rule 8], or
  • A cheque or draft received by the notary which the notary is entitled to split but elects not to [Accounts Rule 5].

Accounts Rule 5 provides that where a notary receives a cheque or draft for an amount which is partly client’s money or trust money, the cheque or draft may be split if it is practical to do so, in which case each sum must be dealt with separately.  If the cheque or draft is not split and the amount in question includes client’s money, the cheque or draft must be paid into a client account.

Accounts Rule 6 makes it clear that no other money other than the monies listed above should be paid into a client account and the notary has a duty to withdraw any monies paid into the client account in error without delay as soon as it is discovered.

Withdrawing money from a client account

Accounts Rule 7 deals with withdrawing money from a client account and permits a withdrawal if, in the case of client’s money, one of the following applies:

  1. the money is paid to the client or paid on behalf of the client,
  2. the money is due to the notary in the form of a debt owed to the notary or disbursements paid out by the notary,
  3. the client has authorised the withdrawal,
  4. the money is due to the notary for or towards payment of the notary’s costs and the client is aware of the fact that the client’s money will be applied to those costs, or
  5. the money is transferred to another client account.

Accounts Rule 7 also permits the withdrawal of trust money from the client account if one of the following applies:

  1. the payment is in execution of a particular trust
  2. the money is transferred to a separate account kept solely for the monies of that particular trust.

Other monies paid into the client account referred to in Accounts Rule 4 (e.g. an opening deposit made by the notary) or Accounts Rule 5 (a sum which should be split between the notary and the client account) may also be withdrawn from the client account but the fundamental point governing all withdrawals is that the client account must not be overdrawn [Accounts Rule 7(c)].

Any withdrawals from the client account that do not fall within the circumstances listed above can only be made by a notary if the Master of the Faculties has given prior written authority.

Who may withdraw

The only persons authorised to withdraw monies from a client account are:

  1. a notary holding a current practising certificate,
  2. an employee of such notary who is also a notary, or
  3. a solicitor or other person holding a registered legal or accounting qualification [Accounts Rule 11(7)].

Key exceptions to the requirement to pay client’s money into a client account

In practice, the majority of notaries are unlikely to ever hold client’s money that has to be paid into a client account and therefore will not need a client account (except in the case of a notary providing conveyancing and/or probate services as a notary).

Accounts Rule 9 provides a clear list of exceptions to the requirement to pay client’s money into a client account:

  1. if the client’s money received by the notary is in the form of cash and that cash is paid without delay in cash to the client or on his behalf to a third party [Accounts Rule 9(1)(a)],
  2. the monies are paid into an account opened in the name of the client or a designated third party as confirmed in writing [Accounts Rule 9(1)(b)],
  3. a client specifically requests in writing that the notary does not pay client’s money into a client account, or the notary acknowledges in writing a request made by the client orally [Accounts Rule 9(2)(a)],
  4. the monies are received as payment or part payment of a debt due to the notary or in reimbursement of monies paid out by the notary on behalf of the client [Accounts Rule 9(2)(b)],
  5. the monies were expressly paid on account of costs if an invoice or other written statement of the costs or fee has been provided to the client [Accounts Rule 9(2)(c)(i)],
  6. the monies were paid to settle in full or in part an agreed fee for work either done or to be done [Accounts Rule 9(2)(c)(i)], or
  7. the monies were expressly paid to meet disbursements which the notary agreed with the client he would pay within 2 months of receiving payment [Accounts Rule 9(2)(d)].

These exceptions cover most circumstances likely to arise in the handling of client’s money as part of a notary’s general notarial practice.  A notary should, however, ensure that client do not pay money “on account” with the fee being agreed or an invoice rendered.  Client’s money received without a fee being agreed or not on account of invoiced costs does not fall within the above exceptions and must be paid into a client account.

Office account

There is no requirement in the Accounts Rules or any other rules for a notary to open and maintain a separate designated office account.  A notary should, however, consider whether having a separate office account would be helpful to the financial management of his or her practice.  Maintaining a designated notarial office account is likely to be particularly helpful to the notary when required to produce financial records should he be required to do so by the Master of the Faculties, in particular in the event of an inspection.  A solicitor-notary, whether employed or in partnership with others, may also find that having a separate notarial office account supports the requirement that the notarial practice must be independent.

Requirement to keep written accounts

If a notary operates a client account, properly written-up accounts must be kept showing all dealings with client’s money and distinguishing client’s money from any other monies the notary may hold from time to time [Accounts Rule 11(1)].  These records may be in the form of ledger accounts, a clients’ cash book or separate clients’ column in a cash book [Accounts Rule 11(2)].  The clients’ cashbook or cashbook column must be reconciled not less than every 3 months and a reconciliation statement showing the agreement with his client bank or building society pass book or statements must be retained [Accounts Rule 11(4)].

Trust monies must be recorded in accordance with the Notaries Trust Accounts Rules discussed below.

All other dealings by a notary in a notary’s practice should be recorded in a cash book and ledger or in columns in a cashbook and ledger depending on how the notary chooses to run his or her accounts [Accounts Rule 11(2)(b)] to ensure that the notary is able to produce records should the notary be required to do so.  These accounts records will also assist a notary to keep financial control of monies that may be paid out in disbursements and will allow the notary to judge the profitability of his or her business.

Although a notary may not be under an obligation to keep written accounts if his or her practice falls within the exceptions above, Accounts Rule 11(3) does require a notary to keep a record of all bills of costs showing both profit costs and disbursements in a “bills delivered book” or a file of copies of such bills and communications relating to costs charged.

Accounts, books, ledgers and records can be kept in various formats including computerised systems and all such records, whether in the form of books, cards, loose-leaf files or otherwise must be retained for a minimum of 6 years [Accounts Rule 11.6].

Requirement to keep accounts:  the solicitor-notary or Notary who also practises as a qualified legal practitioner

In addition to Accounts Rule 11, any notary who practises in a professional partnership or as an employee and shares with his or her partners or employers the fees deriving from the provision of notarial services is obliged under Practice Rule 18.3.2 to keep accounts which enable the income and expenditure arising from the notary’s practice to be distinguished from the income and expenditure arising from the practice or employment as a qualified legal practitioner.  There is a further obligation on the “dual practising” notary who shares notarial fees to furnish the Faculty Office with information relating to the professional partnership and accounting arrangements or to his or her employment as may be required by the Master’s Rules.

Accountant’s Report

An accountant’s report is only required if the notary holds or receives client’s money which must be paid into a client account and does not fall under the exceptions listed above.  Accounts Rule 11A sets out clear guidelines as to who may prepare an accountant’s report and also stipulates the accounting period.  A pro forma report form is available for the reporting accountant to download from the Faculty Office website, which includes a checklist for the reporting accountant to complete.

Compliance

Under Accounts Rule 12 the Master of the Faculties may inspect any accounts-related books, ledgers, records, bank and building society statements and pass books, loose-leaf bank and building society statements, statements of account, vouchers and documents at his own instigation, at the written request of one of the Societies, or if a complaint is received.  The Master of the Faculties may appoint a third party to prepare a report for him and the notary who is the subject of the report is obliged to supply the report writer with any information and paperwork that is asked for.

Failure to comply with the requirement to produce information requested by the Master of the Faculties or the third party appointed to prepare the report is a breach of the Practice Rules (see Chapter 7 – Legal and Regulatory Obligations) and any breach of the Accounts Rules or any other of the Master’s Rules identified as a result of the inspection would be dealt with under the Conduct and Discipline Rules.

The Inspections Regulations also place an obligation on the inspected notary to cooperate with the inspector in providing access to the notary’s records, files, accounts, ledgers and other papers as may be requested by the inspector in order to complete the inspection questionnaire and report (Inspections Regulation 7). The Inspections Regulations also allow the inspector to instigate a further inspection of the notary’s accounts under Accounts Rule 12 or pursuant to Trust Accounts Rule 11.

Accounts (Deposit Interest) Rules

The Accounts (Deposit Interest) Rules are similar to the rules governing solicitors and specify when the notary is obliged to account for interest and the rate to be applied.

Accounting for interest is required when a notary holds money for a client in a separate designated account specific to one particular client, in which case a notary must account for the interest earned on that account to the client.  Where monies are held in an undesignated account (a general client account), the notary accounts for interest depending on how long the monies are held in that account.  A table is set out in Accounts (Deposit Interest) Rule 3(b)(i).

Where the balance for a particular client is significantly variable, a notary will pay interest in accordance with the table on the minimum balance held and then account for such additional interest on the variable balance as is fair and reasonable.  The notary will determine what is fair and reasonable in these circumstances.

Where monies are held intermittently, a notary has discretion to account for interest if it is fair and reasonable to do so in the notary’s opinion.

If monies are transferred between designated and undesignated accounts and interest would not be payable on the amount for the whole time it was held, for instance because the balance dropped below the £500 minimum, a notary shall account for interest as if for the whole time the money was held it was held in an undesignated account.  Due consideration should be given by the notary to Accounts (Deposit Interest) Rule 3(c), if these circumstances apply, as to whether it would be fair and reasonable to pay additional interest on the basis of variable amounts also being held.

Rate of Interest

Accounts (Deposit Interest) Rule 4 states that the rate of interest payable should be the gross rate posted publicly by the relevant bank or building society where the money is being held for small deposits subject to the minimum period of notice of withdrawals.

If monies are held in successive or concurrent accounts in different banks or building societies, the applicable rate will be whichever was the highest rate on a small deposit account with minimum notice of withdrawal period offered by the various banks or building societies involved.

If monies were incorrectly held in an account which was not a client account, then the choice of bank or building society to fix the rate of interest is made by the client.

Where there is dispute over the interest that is properly payable an application may be made to the appropriate Society for a certificate of interest due.

Exceptions

The Accounts (Deposit Interest) Rules do not affect any alternative written arrangement made between the notary and the client as to the application of the client’s money.

The Accounts (Deposit Interest) Rules do not apply to money received by a notary that is the subject of a trust of which the notary is a trustee.

The Trust Accounts Rules

Paying in

The Trust Accounts Rules apply specifically to notary-trustees and specify that all monies subject of a trust, other than monies that would be classified as client’s money under the Accounts Rules, held or received by the notary-trustee must be paid without delay into the trust account of the particular trust.

Monies that may be paid into a trust account are the trust monies, money belonging to the notary-trustee or to a co-trustee that is required in order to open or maintain the account, and any money necessary to replace monies that may have been withdrawn in contravention of Trust Accounts Rule 8.

As in the Accounts Rules, there is provision within the Trust Accounts Rules to deal with monies received that are only part trust monies [Trust Accounts Rule 5].

Any monies paid in incorrectly must be withdrawn promptly as soon as the error is discovered.

There are 2 exceptions to the requirement to pay trust monies into a trust account:

  1. Trust monies do not have to be paid into the trust account if the money received by the notary-trustee is in the form of cash and is without delay paid in cash in the execution of the trust to a third party.
  2. trust money received in the form of a cheque or draft which is without delay endorsed over in the execution of the trust to a third party and is not passed through a bank or building society by the notary.

Withdrawals

Trust Accounts Rule 7 covers the permissible withdrawals from a trust account.  Monies that may be withdrawn are:

  1. payments in the execution of the particular trust,
  2. transfers to a client account,
  3. money that does not form part of the trust, g.the notary-trustee’s money used to open the account,
  4. money paid into the account incorrectly, and
  5. money expressly authorised by the Master of the Faculties in writing.

Requirement to keep written records

Trust Accounts Rule 10 provides for a notary-trustee to keep properly written-up separate accounts in respect of each trust of which he or she is a notary-trustee showing all dealings with money received, held or paid on account of that trust; and distinguishing money received, held or paid on account of a trust from any money received, held or paid on any other account.

Accounts maintained under this rule must be preserved for a minimum of 6 years.

  • You keep accurate written records of your financial transactions as a notary.
  • Your accounting records are well organised and easy for a supervisor or inspector to review.
  • The fee to be paid by a client for a particular matter is recorded in writing and accurately reflected in the notary’s accounting records.
  • You do not keep written accounts or your accounts are partial or not kept up to date.
  • Your accounting records are poorly organised and/or difficult to access or read.