Where residual monies on client accounts cannot be traced and returned to the original owner, professional firms are required to give these unclaimed balances to charity. Oxfordshire Community Foundation (OCF) is working with local law firms to turn these unused funds into community investments.
Guidelines from the Solicitors Regulatory Code of Conduct Rules (20.1.j) state that as long as the firm has made adequate attempts to ascertain the proper destination of the money, if unclaimed it should now be paid to a charity. As well as helping fulfil a firm’s compliance obligations, it can be in their interests to ensure that residual client balances are used to support a charity, rather than remaining inactive and subject to audit each year.
The SRA often requires firms to obtain an indemnity from the beneficiary charity, in case the original owner should seek recompense. For this reason, community foundations are uniquely placed to help firms deal with residual client balances, because they can hold funds in a general endowment earmarked for the firm, meaning the capital funds are protected. In the meantime, the annual income earned from the interest and dividends is distributed to local community groups.
Several local law firms have recently taken advantage of OCF’s services in this area, with OCF creating named funds to house the money – a ringfenced charitable fund held by the community foundation on the firm’s behalf. The funds are being placed in a dedicated endowment fund, which is invested with OCF’s fund managers CCLA. CCLA is one of the UK’s largest charity fund managers, and was awarded Ethical Investment Fund of the Year in the Charity Times Better Society Awards 2015. Its flagship COIF fund employs an ethical screen, which excludes companies involved in production of weapons prohibited under UK law (land mines and cluster bombs) and companies that derive more than a third of revenues from tobacco, pornography and online gambling. The diligence process for new investments includes screening for transparency and sustainability in the context of governance and ethics.
The Chief Executive of one of the law firms OCF has worked with comments: “As a firm, one of our core values is to actively support the community. By working with OCF we have the reassurance that our contributions will have an impact on local projects that will truly benefit. I am pleased that our unclaimed client monies – an issue all legal firms have to deal with – can become a force for good in Oxfordshire.” Introductions can be made to this local firm by OCF on request.
Because OCF works across a range of themes, firms are assured that any residual client balances are having an impact across a spread of different causes. The exact type of organisation and cause to be supported can be selected by the firm according to its charitable objectives, or can be left open.
OCF is also part of a network of 46 accredited community foundations across the UK, so where a firm operates across different regions, our fellow community foundations can be enlisted to ensure any charity donations have the appropriate geographical reach.
Find out more about our services to professional advisors and download a factsheet on residual client balances