FAQs – Part A, question (d)(2) – Controlled Money - Victorian Legal Services Board + Commissioner

Part A – question (d)(2) – Controlled Money – Section 128 & Rules 61 to 64

What is a Controlled money account?

A ‘controlled money account’ is an account maintained by a law practice with an ‘ADI’, specifically to hold controlled money the practice receives.  ‘ADI’ is defined under Section 6 of the Uniform Law as ‘an authorised deposit-taking institution within the meaning of the Banking Act 1959 of the Commonwealth’. A list of ADI’s can be located on the Australian Prudential Regulation Authority (APRA) website.

Unlike a ‘general trust account’, controlled money accounts do not have to be maintained with ADIs approved by the Board, however, they must be maintained with an ADI.

Elements of Controlled Money

Section 128 of the Uniform Law defines ‘Controlled money’ as being money received or held by a law practice where the practice has been given a written direction to deposit the money in an account (other than a general trust account) over which the practice has or will have exclusive control.

A written direction may be to:

  • deposit the money in an account over which the practice has or will have exclusive control (other than a general trust account) ; or
  • disburse the money (other than for legal costs, court order or as authorised by law)

Written direction for controlled money

The Uniform Law requires a law practice to obtain a written direction from the person on whose behalf the money was received (e.g. the client) before the money can be deposited to a controlled money account. The written direction should be specific to avoid possible breaches of the Corporations Act, as law practices are prohibited from giving financial advice to a client (except where the law practice has an Australian Financial Services Licence).

It may be prudent for the written direction to have the details of the matter, reason for the investment, name of the ADI and the type of account (e.g. type of product that an ADI offers) added to the written direction. The law practice should refrain from giving the client advice about investing with a specific ADI and/or type of ADI account.

As soon as practicable after receiving controlled money, a law practice must deposit the money in the account specified in the written direction. In addition, the law practice must ensure that it does not pool controlled money with money held on behalf of another person.

If there is no written direction

In the absence of a written direction, the following avenues would apply:

  1. If a cheque is made payable to the law practice – the money must be deposited into the practice’s general trust account pending written instructions from the person
  2. If a cheque is made payable to the client (or the person on whose behalf the money is held) – the cheque must be delivered to the client or returned to the drawer of the cheque as the money is considered as ‘transit money’
  3. If cash is given to the law practice – the money must be deposited into the practice’s general trust account pending written instructions from the client.

Establishing a Controlled Money Account

A law practice must establish a controlled money account with an ADI as specified in the written direction as soon as practicable after receiving controlled money. The practice may open a controlled money account in anticipation of receiving controlled money after receiving a written direction to do so.

The Controlled Money Account must include the name of the practice, the expression ‘Controlled Money Account’ or ‘CMA’ and particulars to identify the purpose of the account.

It is also suggested that ’ITF’ be recorded in the account name to remove the requirement on the law practice to submit a trustee return as per a tax ruling.

The law practice should be aware that Section 139(6) of the Uniform Law prevents law practices from pooling controlled money. This means the controlled money account must be held exclusively on behalf of the person directing the opening of the account.

 

Last modified April 3, 2019.