UK solicitors report increasing risks associated with client accounts
UK solicitors believe client trust would increase if law firms stopped holding client money in traditional client accounts (63%) but are concerned that losing control of these accounts would impair their ability to deliver legal services effectively (85%). This is according to a new survey from digital payments platform Shieldpay, indicating an appetite for a new approach that better protects clients without compromising solicitors’ ability to maintain a consistently high quality of service.
Two-thirds of UK solicitors (67%) said the associated risks linked to holding client money have grown in recent years. In terms of the SRA Account Rules solicitors are most concerned about breaching, the requirement to return money promptly after there is no longer any need to hold it (Rule 2.5) (41%) tops the list. The considerable resources required (22%) and the admin-heavy process (19%) were cited by firms as the biggest challenges to managing client accounts.
Suggesting the profession will go above and beyond the SRA’s decision on the client money debate, most firms (59%) said that in terms of best practice and compliance, pursuing best practice ensures they are holding themselves to the highest possible standards, regardless of how fast regulation is passed.
The industry, however, is split on whether law firms should continue holding client money, with 51% saying they should, compared to 49% who said they shouldn’t. Despite these divided opinions, ultimately, solicitors believe their main governing body, the SRA, “should ensure that there are proper systems and controls in place to protect consumers in the long term” (88%).
In the last year, SRA investigations increased by 40%, with complaints to the body exceeding 100k .
However, there is resistance to change, as 35% believe nothing needs to change given “it’s the way it’s always been done” (35%). The top blockers to ditching client accounts cited are: cultural resistance (54%), reluctance to change processes (44%), and lack of awareness or understanding of alternative models (43%).
When asked about the most viable solutions, half of solicitors prefer Third Party Managed Accounts (TPMAs) (49%). Two-thirds cite that “TPMAs introduce an additional layer of accountability and transparency” and “TPMAs provide firms with real-time visibility of payment transactions” (both 68%). And while firms with higher risk sensitivity are thought to be the best fit for TPMA use (51%), TPMAs are “for everyone” (48%) was also a highly popular response.
If the SRA were to introduce a mandate to use alternatives to client accounts, most (28%) are keen for a gradual shift, while one in five would move immediately (22%). Seven months to one year was considered to be the most viable time frame (60%) for the shift. Meanwhile, 24% said a hybrid solution, operating a TPMA in parallel with a client account would be the most viable solution.
Sophie Condie, CEO of Shieldpay, comments: “Many law firms will be relieved that the SRA has paused immediate structural reform to client accounts. However, what persists is the operational burden that client accounts are weighing firms down with and a landscape of increasingly sophisticated cybersecurity threats. What the sector needs now is clarity on the alternative money management solutions available and how these meet regulatory requirements without impacting delivery of legal services. As the legal sector stands at a crossroads, we argue that the route forwards isn’t an all or nothing approach, but instead a hybrid model that acknowledges the complexity of the challenges firms are facing.”
Shieldpay is authorised and regulated by the Financial Conduct Authority (FCA) under the Payment Services Regulations 2017, and Shieldpay Trustee Services Limited is registered and supervised by HMRC for anti-money laundering purposes.