Client money reform: key takeaways from the SRA’s consultation
1 Jun 2025 • Professional Practices
The consultation period for the SRA’s 2024 discussion paper on client money in legal services ended in February 2025.
he aim was to evaluate - and potentially reform - how law firms manage client funds, with a focus on three key areas:
The model of solicitors holding client money and ways to reduce the client money held;
Protecting the client money that solicitors hold and ensuring that appropriate controls are in place; and
Delivering and paying for a sustainable compensation fund.
Below, we explore some of the issues raised.
Third Party Managed Accounts (“TPMAs”) – are they a viable alternative?
These have been around for a while now but have not really taken off due to concerns over lack of control, potentially increased regulatory complexity and the loss of interest income. They may suit non-transactional law firms, but are unlikely to be viable for firms handling conveyancing matters that require short-notice transfers from client accounts.
Rather than going down the TPMA route, many firms are instead considering whether they need to hold client money at all. A growing number have concluded it simply isn’t necessary.
Residual balances – how long is too long?
Under Rule 2.5, firms are required to return money to clients “promptly” once a matter has concluded. Typically firms aim to do so within a few weeks; however, it is quite common to find matters where balances remain for several months following the end of the work. The consultation suggests a timeframe of “within 12 weeks” but this could deter firms from focusing on the issue until the deadline approaches. We encourage Finance Managers to (a) remind fee earners of their responsibility to deal with residual funds as soon as a matter concludes; and (b) use alternative methods of communication if the client does not respond to an email. The SRA will want to see that the firm has made a proper effort to track the client down and hasn’t just sent an email or two.
Interest – what is “fair”?
The SRA Accounts Rules require firms to pay clients a “fair” sum of interest, but they don’t define what “fair” means.
At Buzzacott, we also work with firms that are regulated by the Council for Licensed Conveyancers (“CLC”), whose Accounts Code states that “interest earned on client money must be credited to the respective client ledger”. It further specifies that the CLC practice must obtain written consent from the client if it wishes to depart from this requirement.
The SRA’s Rules and the CLC’s Code therefore differ when it comes to interest on client monies, but the concept of fairness applies to both. Calculating and accounting for interest owed can carry an administrative burden, especially where client funds are pooled in a general account. The SRA’s consultation suggests it might prohibit firms from retaining any interest earned on client accounts, possibly subject to a de minimis threshold.
Clients tell us there is an element of trade-off between paying interest and keeping fees as low as possible. So if firms were to be prevented from retaining any interest, they would probably look to increase fees instead. We await the SRA’s decision on next steps.
Get in touch
If you would like to discuss any client money-related matters, please contact Claire Watkins (Partner and Head of Professional Practices Group) on 020 7556 1482 or email watkinsc@buzzacott.co.uk.
