What's new in the trust accounting rules?
The Law Society Rules have been revised to support trust assurance reforms. The Rules are now more effective and more compatible with current and future business practice in law firms - such as modern trust accounting practices and computerized accounting systems.
Because the accounting rules have been streamlined and updated, it is useful for lawyers and their accounting staff to review all the rules in Part 3, Divisions 7 and 8.
The text of the trust accounting rule changes and a summary of those changes are set out in the January, 2004 Member's Manual amendment package, included in this mailing. The rules are also published in the Resource Library section of the Law Society website.
Here are the highlights:
- Rule 2-23: The amendment to this rule clarifies that all accounting records of the lawyer, wherever they are located, must be made available to the Law Society on demand.
- Rule 2-77: An amendment to this rule clarifies that any money received by the Law Society from a lawyer is first attributed to outstanding fines, costs, penalties and deductibles. The amendment ensures that insurance deductibles payable by a lawyer are included in the "priority" list.
- Rule 3-45: The principal amendment adds to subrule (3) the proposition that a lawyer conducts himself or herself in a manner unbecoming a lawyer if he or she fails to take reasonable steps to obtain a discharge from bankruptcy within a reasonable time.
- Rules 3-47 and 3-48: Rule 3-47 now sets out a definition of "valuables." Rules 3-47 and 3-48 give recognition to the fact that lawyers receive in trust assets other than funds and require that lawyers account in writing to anyone having a beneficial interest in such funds or valuables.
- Rule 3-49: This rule, as amended, is intended to ensure that any institution that is a "designated savings institution" has a sound, physical presence in British Columbia.
- Rule 3-52: A lawyer need no longer receive cancelled cheques and bank statements monthly, so long as they are received periodically. A lawyer is permitted to receive and store cancelled cheques and statements in an electronic form acceptable to the Executive Director.
- Rules 3-60 and 3-61: These rules set out the nature of the information that a lawyer must maintain, rather than the method by which the information is recorded and stored, such as by computerized accounting records.
- Rule 3-66: A new subrule (3) clarifies that a "trust shortage" includes a shortage caused by service charges, credit card discounts and bank errors.
- Rule 3-68: Under this rule, the period of mandatory on-site retention of records decreases from five years to three years, which is viewed as reasonable. There is a requirement under subrule (3) for lawyers to make adequate and necessary provision for the security of records and the information contained in them. A lawyer is also required to make a written report to the Executive Director if he or she for any reason loses custody or control of the records.
- Rule 3-71: This rule, as amended, provides that a lawyer retains a right or recourse to a lien, claim or set-off to valuables held in trust, as well as to funds.
- Rule 3-80: On termination of a lawyer's practice, the lawyer must report on the disposition of all files, trust money, documents and valuables for the practice within 30 days of ceasing practice, rather than within three months, which was previously the case. This is an important safeguard in the Law Society being able to detect any problems in a timely way.