Firms that manage client accounts effectively must have robust controls and systems in place to provide confidence to their clients.
Being an RICS-regulated firm that adheres to the client money rules will give independent assurance and confidence to your clients that their funds are well protected and safe.
Firms must read the Professional Statement on Client Money Handling and take steps to ensure that they comply with the requirements. These include a three year period before unidentified funds must be donated to a registered charity and a list of information that must be provided to clients.
The professional statement also provides guidance on the written procedures that firms are required to publish under the Client Money Protection Scheme.
As part of our support to regulated firms during the COVID-19 crisis we also provide advice and template documents on this page to help sole principals put appropriate support in place to provide resilience for their business should they unfortunately become unwell during the crisis, or at any time in the future.
For the avoidance of doubt where any conflict may exist between the professional statement on Client Money Handling and the Client Money Protection Scheme Rules, the Scheme Rules will take precedence.
If your firm has any surplus client money in a client account, best practice is to:
If, after three years, the client or owner of the money has not been found and no true claimants to the money have come forward, it must be donated to a registered charity. A receipt must be obtained for this transaction so should a true claimant come forward to collect the money it can be made available to them. The receiving charity should offer the donating firm an indemnity to enable the firm to recover a donation in the event of a claim.
You can choose to donate surplus client money to RICS’ registered charity, LionHeart.
RICS professional assurance auditors routinely carry out regulatory review visits of firms handling clients’ money. The primary aims of the visits are twofold. Firstly, to ensure that client’ money is held in accordance with the Rules of Conduct and the Professional Statement on Client Money Handling. Secondly, to provide advice and assistance, identify gaps and help regulated firms back into compliance wherever possible. We classify findings from visits into Critical, Serious and Additional points
Some firms are not completing “three-way” client account reconciliations where client funds are held in a general bank account. Bank reconciliations may be completed by reconciling the cash book or system balance to the bank statement, but the reconciled cash book balance may not be reconciled to the total of the client ledger balances. In the absence of such a reconciliation, a firm may not have an accurate and complete accounting record or be able to identify discrepancies timeously.
Some firms do not retain evidence that reconciliations have been reviewed and signed off by a Principal or an independent senior staff member. The Principals of RICS regulated firms are responsible for ensuring that clients’ money is correctly accounted for. Principals (or an independent senior staff member) should be involved in the reconciliation process. It is important that there is a check on the timing and accuracy of reconciliations. We check that old reconciling items, unusual transactions etc. have been followed up and resolved. In a small firm, the review enables the Principal to have confidence that the records are up-to-date and in good order. Once reviewed, reconciliations should be signed and dated as evidence of approval.
The client account bank balance should not be overdrawn, nor should the cash book ever show a negative position. However, if the individual client ledger balances in a general client account are overdrawn, there is automatically an overall deficit potentially disguising a shortfall in client funds. If discovered, the firm should place funds into the client account pending resolution of the negative balance. Any funds paid into the client account by the firm automatically become client money and must not be withdrawn until the firm receives funds for that specific client. Firms must implement controls to ensure that client ledger balances do not become overdrawn.
Increasingly, electronic payments are being made by non-principals who also process client money transactions, sometimes without due supervision or oversight. This lack of senior approval and segregation of duties increases the risk of misappropriation of client funds. Approval to execute electronic payments should be restricted to firm principals or a senior manager who is remote from the day-to-day operation of the client account. Those who do not meet these criteria should only be able to authorise withdrawals from the client account with a second signatory.
In some cases, firms are relying on email confirmation of bank detail changes. Where this is the case, more robust verification procedures are required to ensure adequate safeguarding of client monies. As far as possible, this should include telephone checks. In the absence of adequate procedures in place to establish the validity of changes to payee bank details, there is an increased risk of inappropriate and / or fraudulent payments.
Items requiring reconciliation should not be more than three months old with the exception of cheques which may be allowed six months to clear. Electronic receipts should normally be matched and recorded promptly, and firms should implement robust procedures to process receipts which are initially unidentified. Particular attention should be paid to bank statement entries which have not been recorded on the accounting system. The presence of old reconciling items could mean that client ledger balances are incorrectly stated.
Where the word ‘client’ does not appear in the title of a bank account, there may be insufficient distinction between client money and office money. Consequently, in the event of firm insolvency, client money may not be ring-fenced by the bank. Where this issue is identified, the bank should be instructed to include the word ‘client’, in full, in the titles of all client money bank accounts as soon as possible. This will ensure that the bank and / or liquidators do not use this money to settle the firm’s liabilities. The account title should also include the name of the firm (or a reasonable abbreviation). Discrete accounts should also include the client name or property address.
Publishing written client money handling procedures is a statutory requirement for property agents and a requirement of the RICS Client Money Protection Scheme for all other firms. Clients should be able to understand a firm’s rules and procedures for handling client money. The written procedures must be provided to all clients (for example, in the management agreement) and published on the firm’s website. Further guidance on the topics to be included is available in paragraph 3.5.7 of the Client Money Handling Professional Statement.
It is acceptable to have a suspense ledger or a separate bank account to hold old or unidentified client funds. These accounts, however, are often overlooked as part of the reconciliation process. Firms should provide a breakdown of the balance held showing how long each amount has been held in the account. Records of investigations to trace the beneficiary should be retained. If, after three years, all avenues of locating the beneficiary have been exhausted then the funds must be donated to a registered charity. The firm must obtain a receipt and an indemnity from the charity.
Bank reconciliations should formally document the agreement of the bank statement balance, the cash book and, for the general client account, the client ledger also, explaining any differences. We would normally expect to see reconciliations undertaken on a monthly basis. Reconciliations should be carried out on a timely basis after the period end.
This webinar looks to assist RICS-regulated firms seeking to manage client money effectively during the unique circumstances and challenges created by the Covid-19 crisis