MONIES ON ACCOUNT. WHO IS ACCOUNTABLE?

In November 2024, the SRA issued a report on their consultation looking into ‘Client money in legal servicessafeguarding consumers and providing redress’. This partially came about because of the reported £60 million of client money that was lost when Axiom Ince ceased trading in October 2023.

The history of solicitors holding monies on account is an interesting one. Even up until the beginning of the 20th Century, solicitors could hold their clients’ monies in their own accounts. This was not dissimilar to other professions; notoriously Saatchi & Saatchi once claimed their second biggest source of revenue came from monies they held on account for their clients! Clearly, the loss of interest clients suffered as a consequence had to be dealt with and the framework we operate within today was established by the Solicitors Act in 1941.

But much has happened since 1941 and the legal profession has changed radically. The amounts of monies solicitors hold has grown to billions - so making the risk of it being lost much greater for clients.

Protecting that client money surely has to be the paramount priority. But let's be realistic here; as with exaggerated claims that ethical standards in our profession are diminishing, similarly the media are clutching onto a few isolated cases in order to alarm clients about the security of their monies. Where there is fraud or similar, these matters are severely dealt with - but surely to add more regulation - as is being suggested - is simply unnecessarily burdening law firms whilst not actually increasing safety.

We spoke to Kasey Cowley who is one of the Risk and Compliance Managers at Howard Kennedy LLP. Kasey explains that if the recommendations of the SRA were to go forward, solicitors firms would have to consider appointing Third Party Managed Account (TPMA) providers to hold clients’ monies on their behalf.

“The publicity around the Axiom Ince story caused a huge spotlight to be shone on how law firms hold clients' monies and some action needed to be seen to be taken. Of course, safeguarding our clients’ monies is a serious matter but every day law

firms are dealing with millions of pounds and almost always with no problems. The changes proposed are going to cause huge logistical problems in terms of both affordability and practicality - and are really offering nothing better than what is already in place. Some of the smaller firms may not find it financially viable to be able to appoint a TPMA. Then there is the operational implication; transferring to a TPMA is going to require time and due diligence. Firms will need to assess the security of the systems to consider whether that could impact the quality or timeliness of service to clients; by having a TPMA involved that takes away control from the law firm - and that could, potentially, adversely affect the service to the client. There is potentially more harm than good that could result from the changes. Also, would it actually enhance the safety of client money? Essentially all that is happening is transferring the risk to another entity - and who can ensure that entity is more reliable or trustworthy or safe?”

Another factor that needs to be considered is the availability of these TPMAs ; are there enough to accommodate all the law firms? Kasey believes not. The TPMA has to be FCA regulated and there is SRA guidance for firms who are considering using a TPMA - and more will be needed to make this proposal liable.

There always have - and always will be - examples of misconduct in any and every walk of life. To name a few is far from evidence that the problem is endemic. Law firms are facing greater pressures constantly, as we have explored in other articles within this issue, therefore to add more layers of complexity - especially when they are not needed - is probably not the best way to move forward. Perhaps an updating of an Act that is now 85 years old and therefore not wholly fitting to the current time would be more pertinent?