The Law Society has told the SRA to shelve any thoughts of stopping firms from operating client accounts.
The regulator has made increased noises in recent months about an alternative to firms holding onto client money and issued a discussion paper on the subject earlier this year.
But the Society is concerned at the idea of tearing up established practices based on a handful of recent examples where client money has not been protected.
‘The ability to handle client money is an important difference between solicitors as regulated professionals and unregulated services providers,’ said Society president Nick Emmerson. ‘Client accounts are a fundamental tool for the efficient and effective delivery of many types of legal services. Most firms comply with all the rules. Unfortunately, there are an exceptional few who abuse their position and careful consideration should be given to applying appropriate and proportionate safeguards that might reduce risks to consumers.’
The loss of the client account would also remove a major source of income for many firms who have benefitted from interest rate rises.
Analysis last year from compliance firm RPC said that that with the base rate soaring from 0.1% in 2021 to 5.25% in 2023, some firms were likely to be earning significant sums of interest.
Emmerson said the Society was disappointed that the SRA considering reforms at a time when the outcome of the review into collapsed firm Axiom Ince has yet to be published.
The Legal Services Board announced an investigation into how the SRA handled the firm as it collapsed towards administration. In particular, questions were asked about the regulator’s response as Axiom bought much larger firms and at the same time losing around £64m from the client account.
The Law Society is also likely to push back against any proposals to alter or even remove the compensation fund, despite contributions from the profession having to increase this year to fund costly interventions into Axiom Ince and consolidator firm Metamorph Group.
‘The fund provides an essential last line of defence for clients and it has been the subject of two major SRA consultations since 2018,’ added Emmerson. ‘We reaffirm our commitment to the compensation fund and reiterate our responses to previous consultations, while stating a willingness to give fair consideration to any evidence-based proposals the SRA might put forward to ensure the fund’s long-term sustainability.’
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