Over the last year and a half the California State Bar has face situations that required the organization to alter the way it monitored Client Trust Accounts. The regulations and requirements have gotten more strict for a two-fold result. The initial goal is to increase public safety via enforcement of regulations to establish that attorneys are upholding their ethical obligations.
With the 2023 expansion of Rule 1.15, the “Safekeeping Funds and Property of Clients and Other Persons” and implementation of Rule 2.5, the Client Trust Account Protection Program (CTAPP), there has been progress. As to be expected, with any new implementation, there are some signs that the new system still requires improvements. Below are some of the next steps being proposed to take place as betterment for the oversight of Client Trust Accounts in the state of California.
One key issue that the State Bar is having is verification of information provided by attorneys in a self-reported format. As mandated in the Client Trust Account Protection Program, these actions are annual requirements:
• Annual client trust account reporting
• Annual trust account registration
• Annual client trust account self-assessment
• Annual client trust account certification of compliance
Although self-reporting is a part of the CTAPP program, the State Bar has noticed a negative trend. There appears to be a breakdown between the self-reporting and verifying the self-reported information with the bank. Apparently, at this point in time, the California State Bar lacks the ability to verify the information attorneys are self-reporting about their trust accounts.
The issue is already on the track to being rectified. The Bar proposes to expand the regulatory bank reporting to solve this perceived conundrum. The solution currently undergoing consideration is an expansion of the Business and Professions Code 6091.1. This would require banks to report data about each trust account that attorneys have. This way, the California State Bar could easily verify the information attorney’s are self-reporting. Banking institutions already must meet certain requirements in order for attorneys to be allowed to hold CTAs and IOLTAs with them. The factor alone makes this proposed solution not only the currently plausible one, but likely it could become regulation swiftly. With this ability to verify reported attorney data, the State Bar would be able to identify non-compliance and detect potential misappropriation of funds, as well. An ideal outplay of this scenario gives those attorneys actively striving to meet their ethical duties and obligation chances to receive education in the event of misdemeanor. It would also immediately bring light and reprimands to those intentionally misappropriating client funds.
The State Bar is working with banking institutions and stakeholders to decipher which data points would prove most useful to audit and regulate Client Trust Accounts. Protection of clients requires processes that are efficient and provide maximum value for the safety of the public. Streamlining and modifying the current bank reporting process, better reporting standards and utilize standardized language in reporting are the next steps in improving oversight of CTAs.
It is imperative to remain educated on changing regulations and work with a team that can efficiently support your efforts. Everyday, SmartBean® helps attorneys and their practices comply with California’s new trust account bookkeeping requirements. Our team is uniquely experienced, specifically seeking to help those most impacted: attorneys working on contingency, including employment firms and those handling personal injury. We offer up-to-date guidance on how to best manage three-way reconciliation and provide customized trust account bookkeeping services for a flat monthly rate that fits the needs of your firm! Call SmartBean® for your free consultation today!
