Bar Council tightens rules on lawyers handling clients' money

KUALA LUMPUR: Stricter rules will be imposed on law firms next year when handling clients' money following concerns over dishonest lawyers who have led to substantial insurance payouts.

The Bar Council said the new requirements, introduced under Clause 11(e) of the insurance policy, were aimed at preventing the misuse of clients' funds and protecting their interests.

Under the new rules, law firms with more than one partner must get approval from two partners before making transactions involving clients' accounts.

Firms using online banking must also introduce additional security checks and ensure that the person preparing payment is not the same person approving it.

The changes are part of the Bar Council's 2027 Professional Indemnity Insurance (PII) scheme, which provides insurance protection to law firms against certain claims arising from their legal work.

In a circular dated Sept 25, the council said a significant portion of insurance payouts was due to misconduct and dishonesty involving clients' money.

It warned that if the problem continued, insurance companies would have to pay out more claims, which could eventually lead to higher insurance premiums for all law firms.

"A significant portion of current claim payouts under the PII scheme arises from misconduct and dishonesty related to clients' accounts.

"This trend is unsustainable, as substantial payouts of this nature will inevitably result in higher overall losses and, over time, increased premiums for all firms," it said.

The council said these measures would make it harder for individuals to misuse clients' money without being detected.

Law firms must also continue to comply with the Solicitors' Account Rules 1990 and the Accountant's Report Rules 1990.

The council acknowledged that many law firms already had similar security measures in place but said the new requirements would ensure more consistent practices across the legal profession.

Apart from the new rules, the council also announced changes to insurance coverage for law firms next year.

Firms with one to five lawyers will have their minimum insurance coverage increased to RM500,000, compared with the previous range of RM250,000 to RM450,000.

Firms with six to 35 lawyers will receive an additional RM50,000 in coverage, while larger firms with 36 lawyers or more will benefit from lower amounts they must pay themselves when making an insurance claim.