The Solicitors Regulation Authority (SRA) is embarking on a critical public consultation to examine potential changes in how and when law firms handle client money. This move aims to strengthen the controls, checks, and balances that firms must have in place to protect the funds entrusted to them by their clients.

Reshaping the Landscape of Client Money Management

Rethinking the Necessity of Holding Client Funds

The SRA's consultation will delve into the fundamental question of whether it is still necessary or desirable for law firms to hold client money as widely as they currently do, or if alternative approaches should be considered. This examination could lead to significant shifts in the way the legal industry manages and safeguards client funds.The consultation will also explore potential changes to the SRA Compensation Fund, including the possibility of adjusting the current 50/50 split between individuals and firms in terms of funding contributions. Longer-term, the SRA may consider basing these contributions on factors such as firm size, areas of law, or other risk-related considerations, with the goal of ensuring the overall sustainability of the compensation scheme.

Strengthening Oversight and Accountability

The SRA's consumer protection review, launched in February 2024, has already involved extensive engagement with the public, the legal profession, and other stakeholders. This process has confirmed the paramount importance of safeguarding clients' money, while also highlighting the vital role played by the SRA Compensation Fund.The consultation aims to address the challenges that have come to light, such as the Axiom Ince collapse, where a £66 million hole was discovered in the firm's client account. This high-profile case has underscored the need for robust oversight and accountability measures to protect client funds.

Fostering Transparency and Sustainability

The SRA's CEO, Paul Philip, has emphasized the importance of the public, the profession, and other stakeholders sharing their views on these critical issues. This collaborative approach is designed to ensure that the final outcomes of the consultation process are well-informed and aligned with the needs and expectations of all those involved.By addressing the complex questions surrounding client money management, the SRA aims to enhance transparency, strengthen consumer protection, and promote the long-term sustainability of the legal services industry. The insights and feedback gathered during this consultation will be instrumental in shaping the future of how law firms handle and safeguard the funds entrusted to them by their clients.