The Law Society has published a practice note on deposit protection for client accounts. To a large extent, it updates the previous practice note on the banking crisis (which has not yet been withdrawn). 


The main point to appreciate is that if a bank or institution holding client money collapses, then each client may recover up to £85,000 (was £50,000) from the Financial Services Compensation Scheme. But, this applies only to individuals or small companies (this is a company which is defined as meeting two of these three tests: turnover not exceeding £6.5m pa; balance sheet total less than £3.26m; average number of employees not over 50). Accordingly, solicitors should explain to larger corporate clients that they will not get compensation. 


Note that solicitors can amend their terms of engagement to limit their liability to clients for lost funds, provided they comply with the Code of Conduct (although an express undertaking to pay money must be honoured – even if the institution goes bust). Best practice is to advise all clients in writing that the firm is unlikely to be liable for losses resulting from a banking failure; advise the client of the name of the deposit-taking institution in which any money is held; explain the limitations of the £85,000 limit; remind clients that some institutions have several brands and trading names (so clients should appreciate that money in different brands may still be subject to one £85,000 maximum payout). For full details see www.lawsociety.org.uk.