The Solicitors Regulation Authority (SRA) launched proposals last week to install tighter safeguards on client money. These include reducing client money held by solicitors, introducing more checks and controls on client money that is held, and reforming payments to, and reimbursements from, the Compensation Fund.
About 7,000 firms (75%) held client money in the year to August 2023, SRA figures show, for reasons ranging from a house purchase to settlements paid for personal injury.
The SRA says it has heard concerns about potential conflicts when managing partners also hold key compliance roles.
It reports hearing from some firms that they rely on income generated from interest earned on client accounts, which may incentivise firms to hold more money than necessary and for longer than needed. One option under consideration is stopping firms retaining any interest earned.
However, Law Society president Richard Atkinson said: ‘Firms should continue to be able to operate client accounts, as they are vital for the effective and efficient delivery of many legal services.
‘There is a danger that radical change will add cost and delay for clients and simply transfer the same or even greater risk from the current client accounts system to any new one.
‘Following the Legal Services Board’s decision to take enforcement action after its independent review into the SRA’s handling of the collapse of Axiom Ince, a key question that must be asked is how the SRA can improve its own monitoring and enforcement around these kinds of risks as part of its core regulatory function. Simply passing regulatory responsibility elsewhere is unlikely to be the answer.’
The SRA consultation, ‘Client money in legal services—safeguarding consumers and providing redress’, runs until 21 February 2025.
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