The Regulation of Practice Committee notes that the issue of solicitors borrowing money from their clients continues to arise in the course of Law Society inspections of solicitors’ practices. The committee has noted with concern that, in a large number of these cases, the solicitors in question keep very little documentation to support these loan transactions.

The Law Society’s A Guide to Good Professional Conduct for Solicitors (3^rd edition) is very clear in relation to the situation. Page 24 of the guide sets out as follows:

“A solicitor should not borrow money from a client unless that client is independently represented by another firm in that transaction or it is part of the business of the client to lend money, as when the client is a bank.”

The Regulation of Practice Committee is of the view that a solicitor should not borrow from a client unless the client is in the business of lending money (for example, where the client is a bank). If the client does not come within that category of client, then best practice dictates that the solicitor should arrange for the client to obtain independent legal advice and that full supporting documentation for the loan be recorded on the client’s file. Accordingly, details of the agreement for the client to lend money to the solicitor should be evidenced in writing, which writing should include, among other things, the amount of the loan, the date of the agreement, the terms of repayment, and evidence of the identity of the solicitor providing the independent legal advice.

In order to protect the integrity of the relationship between a solicitor and their client, as well as to avoid any conflict of interest, best practice dictates that loans should not be entered into in the context of the solicitor/client relationship. While the circumstances of each and every loan situation fall to be examined in the individual circumstances and merits of each case, it is entirely foreseeable that a loan arrangement that does not maintain the highest standards of professional probity and ethical behaviour could amount to professional misconduct and leave the solicitor open to disciplinary proceedings and sanction. 

It should also be noted that any solicitor who engages in any activity that amounts to carrying on the business of moneylending is subject to the provisions of the Consumer Credit Act 1995, as well as other associated legislation, such as the European Communities (Consumer Credit) Regulations 2010 and other instruments, such as the relevant consumer protection code. In addition to the specific legal obligations and liability that such laws create, a breach of them could, in addition, amount to conduct that is professional misconduct.

Moneylending and the provision of credit to consumers is now a highly regulated area of law, and solicitors should ensure that their conduct does not enable persons engaged in such activity to evade their regulatory obligations by purporting to conduct such business through a solicitor’s firm.

It should also be noted that the existence of unexplained and/or unclear loan arrangements in a solicitor’s practice may give rise to a suspicion of money-laundering and may trigger reporting obligations for the Law Society in that regard.