Just a fraction of the 10,000 firms in England and Wales have taken advantage of a rule change making it easier for them to outsource the handling of client money, the Solicitors Regulation Authority has revealed.
Speaking almost a year to the day since new accounts rules were implemented, policy associate Jatinderpal Loyal said that up to 60 firms have moved money into a third party managed account (TPMA).
It is not clear whether the SRA expected more firms to take up the option, but Loyal was keen to stress the advantages when he spoke at the regulator’s compliance conference this week.
‘They are the right way in terms of managing all the risk around holding client money – not just the risk of money being taken by somebody that is dishonest within the firm but also other risks around cybercrime,’ said Loyal. The price of indemnity insurance generally depends on questions about client money, he noted. ’As soon as firms move into using a TPMA the benefits will start to come through.’
The session also heard that when firm auditors make qualified reports to the SRA they are most likely to raise issues about residual balances, where client money has been left untouched for some time.
Sean Hankin, head of forensic investigation and intelligence for the SRA, said the regulator was not too concerned so long as firms had policies and procedures around these balances. ‘We are more concerned where firms have large amounts of residual balances but don’t have any plan to deal with them,’ he said. ’That would pose a real risk.’
Hankin said the SRA had taken a relaxed approach to qualified reports coming in after the six-month deadline, given the difficulties in speaking to firms since the lockdown, but warned that this leniency would not last.
‘We have given some leeway [but] we can’t wait forever. If you need to submit a report late then please do and explain why it’s late.’