A body representing City lawyers has become the latest professional group to condemn proposals to change how client money is held.

The City of London Law Society said the Solicitors Regulation Authority's proposals show further evidence of its instinct to overregulate - and that they threaten to harm the sector.

In a response to the SRA consultation on consumer protection, the CLLS says that some of the regulator’s beliefs are based only on anecdotal evidence. The suggestion that third parties could manage client funds rather than law firms is dismissed as ‘unrealistic’. It effectively amounts to solicitors sub-contracting out the running of the client account, the CLLS states.

‘It may be that in due course the market finds a different or better way of dealing with such transactions which require a central trust element particularly as technology advances,’ the response continues. ‘However, there is currently no realistic alternative. It would also follow that a regulator seeking to deconstruct such an enormous element of commercial life and therefore push against market forces is heading down the wrong path and risks disrupting the market, undermining economic growth and weakening the economic significance of those whom it regulates.’

The SRA’s wide-ranging consultation on consumer protection not only discusses whether to bring in a third party to manage client funds, but asserts that law firms should not be able to profit from holding client money and retaining the interest.

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The regulator said it was concerned that, particularly with large sums of money, the potential financial benefit ‘may be driving behaviours that are not in the interest of clients’.

The CLLS says it would be disproportionate to place additional regulatory burdens on the profession based on a small number of cases. The response adds: ‘It is notable that many of the justifications for action by the SRA are based on passages that start with phrases such as “we have heard” or “anecdotally”. What is of course lacking is any sense of how widespread are the practices that the SRA has heard about.’

The starting point for considering the accrued interest issue is that law firms are providing a service to their clients through the operation of a client account, the response states. If firms are holding onto client money for too long, the existing framework allows regulatory action to be taken.

The SRA’s consultation has been met with near-universal opposition and criticism. Representative groups such as the Law Society and the Joint V group of regional law societies have voiced their disapproval, the former arguing that the SRA is seeking to undermine systems which have been used for decades by law firms handling millions of successful transactions completed every year.

The Legal Services Consumer Panel, meanwhile, has said it is unhappy that the plans did not go far enough and did not include a firm commitment to seek a third party provider to hold onto client funds.