The British Bankers’ Association and the Law Society may seek legislation to clear up confusion over compensation payable when solicitors’ client accounts are held in collapsed banks.

The two bodies are considering asking the government to amend the Banking Bill, currently passing through Parliament, if solicitors, banks and regulators find themselves unable to agree on a standard course of action under existing law.

The bill will establish a permanent statutory regime for dealing with failing banks. It will also allow changes to be made to the Financial Services Compensation Scheme (FSCS), which pays up to £50,000 compensation to those who hold accounts – including solicitors’ client accounts – in collapsed banks.

As it stands, there is no law dealing specifically with compensation for solicitors’ client accounts, where money from multiple clients may be pooled. Confusion exists over how the £50,000 compensation from the scheme would apply to each account and each client in the event of a bank collapse.

Law Society chief executive Des Hudson said the discussions are ‘early stage’, but the bill could be used as a ‘vehicle’ to help clarify what solicitors’ and clients’ liabilities are.

Meanwhile, the Department for Business, Enterprise and Regulatory Reform has confirmed that law firms are eligible for a scheme to help small- and medium-sized businesses in need of credit.

Business secretary Lord Mandelson (pictured) announced three initiatives, making up to £20bn available in short-term loans to firms with a turnover of up to £500m, up to £1.3bn available to small firms with a turnover of up to £25m, and a further £75m available to small, indebted businesses. The funds will be channelled through high street banks.