Does the storied demise of Axiom Ince sound the death knell for the client account? We may get some indication this week, when the SRA consults on the outcome of its consumer protection review.
Like Winston Churchill, it seems, the regulator is keen not to let a good crisis go to waste. For we already know what the leadership thinks. Earlier this year, chief executive Paul Philip told a seminar that the cost of regulation would ‘drop like a stone’ if solicitors were not allowed to hold client money. Anti-money laundering issues would dissipate, as would the risk of falling trust in the profession from mishandling client funds, he enthused.
It’s hardly that simple, of course, as even the SRA acknowledges. We know this because the regulator has been here before, a decade ago. Passing client money to third-party providers is superficially attractive, but critical questions that went unanswered then remain unanswered.
Where’s the market? Who will superintend TPPs – the Financial Conduct Authority? How much will it cost? Will consumers end up paying higher fees?
Moreover, diverting client money to third parties will not necessarily mitigate the risks of those funds being misused or looted. All it will do is transfer the jeopardy elsewhere. It might even make matters worse. Does the financial sector have a cleaner record when it comes to probity than legal services? Not in my experience of covering both sectors over the last 25 years.
The Law Society will certainly fight to keep the client account, pointing out (among many other things) the unfairness of penalising the sober and scrupulous many for the misdemeanours of a maverick and reckless few.
More likely, in the short term at least, are further curbs on firms earning interest from client money. ‘We have heard worrying things from some firms that if they didn’t have that cash they would be in some difficulty. But that is not what that cash is there for,’ SRA chair Anna Bradley told last week’s SRA compliance conference.
She is right, in a narrow sense, but significant sums could be at stake when interest rates spike once again. Total net interest income rose 1,000% to £27.5m in 2023 at the firms canvassed for the Law Society’s latest financial benchmarking survey. That was nearly £200,000 a firm – and for some, the difference between oblivion and still being here today.
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