Proposed Amendments to Client Trust Account Protection Program Rules

Proposed Amendments to Client Trust Account Protection Program Rules

The State Bar seeks public comment on various amendments to the Rules of the State Bar regarding the Client Trust Account Protection Program, including a proposed reorganization of rules 2.4 through 2.6 into a new Division 1.5 in Title 2.

January 20, 2025, 11:59 p.m. (60 days)

Direct comments to

Comments should be submitted using the online Public Comment Form. The online form allows you to input your comments directly.

Background

Proposed new rule 2.4 provides definitions that govern the interpretation of the rules applicable to the Client Trust Account Protection Program (CTAPP). Among other things, proposed amendments to rule 2.5 remove the defined terms (as they are proposed to be incorporated in the new rule 2.4), update paragraph letters due to the removal of the defined terms, clarify the trust accounts that must be registered annually, add the concept of designated licensee, update internal references to paragraphs, correct an erroneous caption to the former paragraph E, require licensees to furnish certain information to any financial institution in which they maintain a trust account, and revise the existing CTAPP compliance exemption for licensees who are not entitled to practice law at the time of the reporting deadline. Proposed new rule 2.6 establishes compliance reviews and investigative audits as part of CTAPP.

Discussion/proposal

Proposed rule 2.4 is intended to be a centralized definitions rule for definitions applicable to the CTAPP program generally. The definitions section of current rule 2.5 and new definitions applicable to the proposed rule 2.6 have been consolidated into proposed rule 2.4 to allow those reading the rules to more easily locate and be aware of what terms, as applicable to the division, are defined. The definitions have also been reordered so they are alphabetical.

Proposed changes to rule 2.5 include:

  • Removing “Client Trust Account protection program” from the title of the rule given that these rules will be reorganized into a new division specifically pertaining to the Client Trust Account Protection Program;
  • Removing the reference to the authorizing Rule of Court;
  • Removing the definitions from rule 2.5 and relettering the remaining paragraphs;
  • Updating references to paragraphs within the rule to match the revised lettering;
  • Changing “and” to “or” to clarify that being responsible for funds entrusted by clients or others is sufficient to require action by the licensee;
  • Clarifying former subparagraph (B)(2) (proposed subparagraph (A)(2)) to state trust accounts need to be reported and registered even where no entrusted funds were held in the account;
  • Adding a requirement that licensees identify the full name and license number of the designated licensee to the list of information to be reported to the State Bar during the annual trust account registration;
  • Correcting an erroneous heading to former paragraph E (proposed paragraph D);
  • Defining the duties of the designated licensee;
  • Requiring the designated licensee to be the primary account holder or signatory on the trust account, establishing that it is the duty of the designated licensee to perform or supervise the monthly reconciliation of the trust account;
  • Consistent with Business and Professions Code section 6091.3, effective January 1, 2025, requiring licensees to furnish their information to any financial institution in which they maintain a trust account; and
  • Removing the exemption for licensees who were not entitled to practice law at the time of the reporting deadline.

Proposed new rule 2.6 sets forth the requirements for compliance reviews, investigative audits, and mandatory corrective actions. Proposed rule 2.6 also provides for the confidentiality of records provided to the State Bar or its agents as part of the compliance review and investigative audit procedure, as specified. Effective January 1, 2025, Business and Professions Code section 6091.4 will protect the duty of confidentiality, attorney-client privilege, and work product doctrine, with respect to documents provided to the State Bar or its agents during a CTAPP review or audit. 

Proposed rule 2.6 also establishes that licensees are deemed to be noncompliant with rule 2.6 if they fail to: 

  1. Comply with any of the compliance review or investigative audit requirements of rule 2.6 or Section 6091.4 of the Business and Professions Code;
  2. Provide a timely response, as reasonably requested by the State Bar or its agents, to questions or requests for additional information or documents regarding records subject to a compliance review or investigative audit under rule 2.6 in a complete and accurate manner; or
  3. Comply with a mandatory corrective action plan.

Any fiscal/personnel impact

The compliance review and investigative audit program will result in additional costs. The State Bar fee bill, effective January 1, 2025, includes funding for these functions. 

Background material

Source

Board of Trustees, sitting as the Regulation and Discipline Committee

Deadline

January 20, 2025, 11:59 p.m.

Direct comments to

Comments should be submitted using the online Public Comment Form. The online form allows you to input your comments directly.