ILFM feedback to the SRA's news on consumer protection and client account risk management
Updated 20 February 2024
The Solicitors Regulation Authority (SRA) has launched a review of consumer protection in response to evolving risks in the legal sector. Axiom Ince intervention and the impact on solicitors’ fees and PII together with consumer mistrust and handling of client money has culminated in the regulators’ need for change.
The SRA witnesses increasing and changing risks with law firms, especially with regard to client funds. Firms failing, fraud and dishonesty are front of mind for this review. The future of how firms operate with client monies is going to be very interesting. For example, if the regulator mandates that your firm cannot hold client balances, how will you and your colleagues operate? Might firms be forced to engage with Third Party Managed Accounts (TPMA)? What might be the impact on more TPMAs popping up to take advantage of a new situation?
Steve Brett, co-founder of 3C Compliance Training, said of the review,
"We must expect some changes to how firms are expected to prove that they are managing the movement of client cash, with or without a TPMA. The days of an annual accounts check being sufficient is likely to be gone soon. Will firms need to hold capital on account? Increased insurance? Monthly accounts returns? Will we see new financial services products aimed at law firms?
How will we ensure that customers understand the real risk of a law firm handling funds? How will a lawyer manage their undertakings if they don't control the funds?
It’s going to be an interesting journey. One thing for sure is that there are going to be some interesting conversations over the next year or so especially as the SRA is signalling that the costs of the compensation fund are likely to increase."
The ILFM is fiercely protective of law firm client account handling and Karen Edwards, Head of Professional Development, said of the review:
"Any review into increasing public trust and confidence to protect client money and assets in the legal profession is very welcome. It is vital that consumers of law trust instructed firms to take care of their money and to keep it safe. We know that the primary purpose of the SRA Accounts Rules is to do just that, and it is clear from the Axiom Ince intervention that this did not happen. The current rules are less prescriptive than the previous set, which means firms are able to tailor their policies to make them suitable to their practice. However, some may argue that the current arrangements are not effective enough to ensure client money is protected.
The ILFM, as the professional body for legal finance, compliance and practice management looks forward to hearing the outcome to this review and will continue to provide updates and support to its members in this regard.”
Two main areas the SRA will review
We are all consumers of law in one way or another, be it buying and selling a house, going through probate, getting a divorce, or owning a business and getting involved in dispute resolution or commercial contracts. However, we also work in the legal finance, compliance and practice management profession so have the added interest in protecting client money and following procedures around risk.
- The first area that the SRA is looking into are finding gaps, monitoring problems and approving firms, whilst it continues to look at its rules and procedures surrounding how law firms hold client money.
- The second area will be compensation fund arrangements. Further to Axiom Ince intervention, the SRA’s compensation fund has come under increased pressure in terms of claims.
How can you get involved in the Review?
The points the regulator would like stakeholders (professional bodies, high street law firms, local law societies etc) to get involved in are as follows:
- To improve the SRA’s approach to consumer protection;
- To make sure the SRA is fit to face the challenges of a changing legal landscape; and
- To make sure the SRA will deliver the best results to consumers.
The SRA said it will carry out “extensive engagement” with consumers and their representatives. In the meantime, the SRA has the following opportunity to get involved with their webinar, and offers subsequent roundtables thereafter.
Conveyancing & Probate Teams: 12 March 2024 - Roundtable: representatives from high street solicitors focusing on issues concerning probate and conveyancing.
To read the SRA’s Review in full please READ HERE.