The overwhelming majority of law firms have voiced strong opposition to the Solicitors Regulation Authority (SRA) proposal that would prevent them from holding client money, claiming it could negatively impact client experience and increase costs.
A recent survey conducted by NatWest across nearly 100 small and medium-sized enterprise (SME) law firms revealed a significant disapproval of the SRA’s proposed changes. Specifically, 96% of the firms disagreed with the idea of stopping firms from holding client money. They argue that such a move would likely degrade the quality of client experience—a sentiment shared by 58% of respondents.
Moreover, 16% expressed concerns that legal service costs would rise as a result of these changes. Despite these worries, 13% of surveyed firms were neutral, believing that the proposal would have limited effect on protecting client funds. However, 6% feared a potential reputational risk to the profession, while another 6% predicted that some firms might face failures due to financial reliance on account interest.
The concept of utilising third-party managed accounts (TPMAs) as an alternative to holding client money directly was largely dismissed by the respondents, with 88% finding TPMAs an unviable solution at present.Alison Lobb, managing partner of Morecrofts in Liverpool, criticised the proposal, arguing it was akin to using “a sledgehammer to crack a nut.” She emphasised that the longstanding ability of solicitors to manage client money safely and efficiently was being overlooked. Lobb warned that the proposed changes would not enhance the security of client funds and could complicate legal matters, leading to increased client claims and additional costs.
The sentiment was echoed by Neil Lloyd, managing director of FBC Manby Bowdler, who remarked that preventing firms from holding client money might simplify operations but would erode profitability and viability in the short term. He cautioned that the inevitable outcome for consumers would be higher prices for legal services, impacting areas such as residential conveyancing and private client services significantly.
Mike Leeman of Bell Lamb & Joynson concurred, suggesting the proposal sidestepped fundamental issues within the regulatory framework that need addressing. He questioned the practicality of relying on TPMAs, citing potential delays and diminished client experience. Leeman underlined that while TPMAs technology is available, its application would likely hinder transaction speed rather than facilitate it.
The feedback from the legal sector suggests a clear disconnect between the SRA’s objectives and the operational realities faced by legal firms. While the regulator aims to mitigate risks associated with managing client funds, law firms are concerned about the practicality and repercussions of such proposals on their business operations and client relationships.
