The Law Society has published a practice note – Deposit protection for client accounts (23 December 2010) – advising solicitors of their rights and liabilities in respect of funds held on behalf of clients in the event of the collapse of an authorised deposit-taking institution. Recent changes to UK legislation have brought about an increase in the compensation limit for eligible claimants in the event of failure of a deposit-taking institution. As from 1 January 2011, the amount the Government’s Financial Services Compensation Scheme can pay out in compensation has increased from £50,000 to £85,000
This practice note appears (without saying so) to duplicate and therefore supersede the Law Society’s Banking crisis practice note (8 January 2009). Repeat advice is given in this note regarding the wording of undertakings to deal with possible bank collapse. The note reminds solicitors that they are free to decide whether to offer or accept an undertaking, so long as to do so is not against the client’s interests, and that they may also negotiate the terms of the undertakings, where this is in the best interests of clients. However, in residential conveyancing transactions, the Law Society comments that it is “highly unlikely that buyers’ solicitors could properly accept offers of a limited undertaking in their clients’ best interest. Also, offering such an undertaking may breach the obligations of sellers’ solicitors to their clients, depending on the terms of their retainer.”