Confused solicitors have called on the Financial Services Compensation Scheme (FSCS) to clarify what would happen if a bank’s collapse wiped out pooled client money.

At the end of September, the FSCS told the Gazette that, as long as solicitors told their bank they were depositing money from multiple clients into a single account, each client would benefit from the maximum £35,000 protection (see [2008] Gazette, 25 September, 1].

However, solicitors who are following the FSCS’s advice said this week that their banks appear unsure of how to handle the situation.

Neil Turner, senior partner at London firm Cumberland Ellis, said he is worried about advising clients on what to do with their funds because solicitors are not regulated financial advisers under the Financial Services Act.

The government last week increased the upper limit of compensation from £35,000 to £50,000, but declined to follow other European governments and guarantee bank deposits in full. British banking chiefs expressed anxiety over customers switching to foreign banks to benefit from 100% protection.

Turner said: ‘I suspect banks are still quite confused about what to do at the moment. Our banker was of the opinion that we would receive only £35,000 in the event of a collapse, which would mean our clients would receive only 0.7p each.’

Jon Tuckett, finance manager at south-west firm Stones, said he had contacted his bank to make certain of this protection but had received no response. He said he had nevertheless forwarded to the bank the names of clients who had an interest in the funds pooled by his firm.

Tim Harris, partner at Leeds firm Morrish & Co, highlighted one absurdity of the situation. ‘If it is correct that a bank’s collapse was the client’s problem, rather than the solicitor’s, is the best advice to clients that they should deposit money with a negligent solicitor, as they will be able to claim on their indemnity insurance?,’ he said.