The Law Society has rejected proposals by the Solicitors Regulation Authority to approve client accounts managed by third parties.
The Society said offering an alternative to the client account would be expensive and do little to reduce the risks of misuse of client funds.
As part of a wider consultation on a range of regulations, the SRA is exploring the possibility of relaxing rules preventing solicitors from using a third party to manage client money.
The Society noted the question of the client account was ‘premature’ before a fuller, dedicated consultation with analysis and impact assessment.
But in the meantime its response brought up a number of potential problems that would make it unattractive for firms to use a third party.
‘There is no reason to believe that there will be any cost saving from firms being able to access third-party managed accounts, probably quite the reverse,’ it said. ‘There is also no reason to believe that it will represent any better protection against fraud.’
The Society said the present arrangements present ‘no risk’ to the public as they are covered by insurance and the SRA compensation scheme. The consultation failed to address the issue of how clients would be compensated if a third-party account provider collapsed, added the Society.
A scheme along the lines of the best-known third-party scheme, the Bar Council-operated BARCO, would be ‘prohibitively expensive’ for many firms as it charged a 1% fee.
Added difficulties would arise around attaining written consent for the release of funds, with banks also likely to impose extra fees.
The response added: ‘On the face of it, this is a liberalising and permissive measure allowing solicitors to have a choice: however, there has been no meaningful attempt to consider the possible consequences of approving third-party managed accounts.’
The idea has already received a lukewarm response from the City of London Law Society, which said its members would be unlikely to move funds to any third-party provider.