Several major City law firms are considering changing their terms of business in client engagement letters to take account of the current banking crisis.
The firms, which spoke to The Lawyer on condition of anonymity, have indicated that the issue of safeguarding client accounts is actively under discussion. One magic circle partner said: “We expect to see terms of business going out which exclude all liability for a crash of a bank.”
A handful of firms in the top 20 have already contacted the Law Society for guidance, fearing that billions of pounds they hold on behalf of clients could be left unprotected if the firm’s bank should go bust.
A Law Society spokesperson said: “The Law Society believes that the total amount held in client accounts is probably more than £3bn.”
The worries have heightened against a background of the increasing threat to UK banks, as the Government has hammered out plans to extend the guarantee for personal savings deposits to £50,000.
In any case, the Financial Services Compensation Scheme does not extend to large firms and corporate entities.
The Law Society’s director of legal policy Mark Stobbs hopes to issue advice that will set out that if a bank that held client funds for a firm went insolvent, the firm would generally be safe from legal action from the client unless the firm was negligent in choosing a bank.
The problem would be one for the client to take up with the financial regulators.
Law Society president Paul Marsh said: “We urge the Government to sort out the banking crisis which is leading firms and their clients to be concerned about money held in client accounts. We are in talks with the SRA and we will be issuing a practice note shortly to give solicitors the best advice that is available.”
Smaller firms with a turnover of no more than £6.5m a year, a balance sheet of less than £3.26m and no more than 50 employees could remain protected under the Financial Services Compensation Scheme for a maximum of £50,000 per client.