SRA backs away from sweeping changes to client account

The Solicitors Regulation Authority has no plans to go ahead with sweeping changes to the client account, it has been revealed.

In February the regulator closed a consultation on safeguarding consumers which raised the question of reducing the client money held by solicitors.

Chair Anna Bradley, reflecting on the board meeting held last week, quelled fears that this might mean making plans to tackle the client account in favour of a third party holding client funds. Bradley said the SRA had heard some appetite for change to address the root causes of risk to client money but that these were ‘complex issues, that cannot be solved with quick fixes.

‘We consider there is a strong case to properly explore the long-term transformation of the model of holding client money and how the compensation fund is funded,’ said Bradley. However, our immediate focus is on making changes to better protect and safeguard client money under the current system. So we plan to consult later this year on these changes. We then plan to return to those bigger, longer term questions after we have made changes to the current system when we can give them the robust consideration they need.’

The SRA said in its consultation that it was concerned about the interest that some firms were making from client money, noting that the potential financial benefit might be driving unethical behaviour. The regulator was clear that it was not appropriate for firms to continue to profit from holding money on behalf of clients and that clients should receive the interest instead. Firms should instead reflect the costs of holding client money through the fees they charge.

The SRA said it wanted to explore other options, including third-party managed accounts or the model used in jurisdictions such as France, which has a centralised mandatory system where lawyers have no access to client money.

The Law Society was among the opponents to the idea of scrapping the client account, saying the SRA’s perceived risk assessment was disproportionate and lacked evidence. It added that the profession is highly trained, regulated and trusted by the public to hold money, with only an ‘exceptional few’ who abuse their position.