Public policy towards solicitors holding client money is all over the place, divided crudely between those who want client accounts to continue, and those who want them gone.

The SRA has raised the spectre of solicitors not holding client money at all. Following the Axiom Ince debacle, it published a consultation on the topic last year.

On the other hand, the Ministry of Justice is very interested in an IOLTA scheme (interest on lawyers’ trust accounts), in order to use interest on client money towards the public good, or more accurately, towards propping up the failing legal aid scheme. For that to work, presumably the more money solicitors hold in a client account, the better (and also the higher the interest rates, but that is another matter). A ban on client accounts might also affect the financial viability of the kind of firms the MoJ needs to exist for legal aid and high street practice.

Forget the clash of ideas. The SRA is now in a weakened position and unable to push its policies very hard. It is not only reeling from the very negative report card it received from the LSB after the Axiom Ince failure, but it is waiting for its presumed next telling-off once the report into SSB Law is published, seemingly soon. The SRA’s ability to act radically has therefore been reduced. (For the record: the SSB failure does not concern client money, but is rather a case involving the high-volume claims market and the functioning of after-the-event insurance).

Given its difficulties, it should come as no surprise that the SRA, in the first published response to its consultation on client accounts, has pushed into the long grass the prospect of their abolition, and has declared rather that ‘our immediate focus is on making changes to better protect and safeguard client money under the current system’.

In any case, the directions that the SRA received from the LSB after Axiom Ince made clear that its role in relation to client accounts in the immediate future is to ‘Strengthen the regulation of client money to better protect and promote the public interest and the interests of consumers’ – which appears to go in the opposite direction to abolition.

Is it too much to hope that there has there been communication between the MoJ (client money is good for our coffers) and the SRA (client money is bad for consumer protection) while this has been playing out?

It is not that the SRA has altogether given up on its consideration of radical steps: it says that it plans to return to the longer term questions of solicitors holding client money and the compensation fund after it has made changes to the current system, at a time when it can give those questions ‘the robust consideration they need’.

To return to the other side of the policy divide, the Gazette covered the Ministry of Justice’s eagerness to consider siphoning off interest on client accounts back in July. (The English and Welsh version of any possible future scheme will be called ILCA - interest on lawyers’ client accounts - and not IOLTA, by which it is known in other common law countries.)

The Ministry held roundtable discussions with stakeholders last month. It is difficult to believe that those solicitors being consulted said anything other than: back off.

The President of the Law Society gave some of the reasons why back in July. This would be a hypothecated tax on the profession, when other professions (or trades) do not have to fund their own sectors. The profession already generates significant government revenue – see the recent statistics put out by the Law Society. It is questionable whether such large sums are in any case held nowadays on client accounts due to changes in banking. And, maybe most important of all, as previously stated, the very firms that the government wants to survive and thrive – legal aid and high street firms – will be the most negatively impacted, as they generally have a higher dependence on income received from interest.

At the same time, but less directly, the House of Commons Justice Select Committee has launched a new inquiry into access to justice. It does not talk about client accounts, but does raise this consultation question, among others:

 ‘Without impacting the public purse, what potential funding options would increase access to justice? e.g. an access to justice fund levy, conditional fee arrangements, third party funding. If limited funds were available, what would be the priority areas for spending?’

This is not the place to examine a levy on the profession, which raises some of the same questions as interest on client accounts (for example, it is a hypothecated tax on a profession which already raises significant government revenue).

As I said, policy is all over the place. Different public authorities are moving in different directions, sometimes in opposing directions on the same questions.

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