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Solicitors reject bid to restrict client accounts

The Law Society of England and Wales has come out against a proposal from the Solicitors Regulation Authority’s (SRA) proposal to move away from client accounts to third-party managed accounts.

The organisation was responding to an SRA consultation on client money in legal services, which was launched after the collapse of law firm Axiom Ince.

The consultation looks at possible changes to how solicitors hold client money, how client money is handled, and issues surrounding the SRA Compensation Fund.

‘Fundamental’

Law Society president Richard Atkinson said: “Our members remain strongly opposed to any changes to client accounts, which have been used for decades by law firms with millions of successful transactions conducted each year.

He described such accounts as “fundamental to the efficient and effective delivery of most legal services”.

Atkinson added that both the client account and Compensation Fund were “crucial safeguards” for the consumer whose losses might otherwise go unaddressed.

“Proportionate safeguards might mitigate risks to consumers; however, restricting or banning law firms’ ability to hold client funds would significantly damage the quality of services provided to the public.

“Removing client accounts may have huge ramifications for the quality of legal services – including higher costs, delays and reduced access to justice,” Atkinson said.

Analysis ‘lacks evidence’

He added that the SRA’s analysis of the perceived problems lacked evidence to support the radical reforms that the consultation proposed.

“Shifting to third-party managed accounts would not eliminate the risk of fraud or cyber-crime. Solicitors would still need to conduct extensive money-laundering checks under AML regulations and could face criminal prosecution for failing to do so,” Atkinson stated.

The society urged the SRA to focus on improving its processes for identifying, monitoring, and managing potential risks to consumers.

It has also recommended the SRA re-introduce mandatory annual accountant’s reports, strengthen authorisation processes, and increase scrutiny of non-legal personnel.

Atkinson also rejected the SRA’s proposed change to the Compensation Fund contributions from a 50-50 split to 70-30 for individuals and firms, respectively, in 2025-26.