The Law Society has welcomed the Financial Services Authority’s proposal to provide extra protection for holders of temporary high deposit balances in the event of a failure of a UK bank.

The current maximum deposit protected by the Financial Services Compensation Scheme is £50,000 per individual, per bank or building society.

In March, the FSA issued a consultation paper on plans to extend the scheme to cover balances of up to £500,000 for six months. This was is recognition of the fact that there are occasions were some people have to place a large amount in a single account as a result of transactions such as selling a house, receiving an inheritance or pension lump sum, or an award for personal injury. In many cases, these amounts are held by solicitors in their client accounts.

Responding to the paper, the Law Society today said it broadly supported the proposals, but suggested cover should be extended for deposits connected with residential property and trust property transactions to £1m. The £500,000 sum, it said, may be inadequate in some cases particularly in relation to properties in London and the south-east.

It also suggested the six-month extension may be inadequate and impractical in relation to complicated estates or for people who are mentally incapacitated, where frequently the money has to be held for significantly longer. In these cases, the Society says the timelimit should be increased to two years.

Chancery Lane said solicitors have a limited duty in relation to clients in respect of client money. That duty is to invest it in accordance with the Solicitors Accounts Rules, taking account of the best interests of the client. If a bank collapses, the solicitor would not be liable for the client money lost.

‘It is not the role of solicitors to underwrite the banking system and it is hard to see why a client should have greater protection because money has been placed in a solicitor’s hands than if it is in their own account,’ it said.