Should law firms hold client money at all? The question just became official

The end of the client account is now on the agenda

Buried in a progress report on the SRA's post-Axiom Ince reforms is the most consequential sentence in legal regulation this year.

The report recommends the regulator establish a "defined workstream, plan and timeline to address the question of whether firms should hold client money at all", alongside a "structured investigation into the wider use of third-party managed accounts", including whether they could be incentivised or required for higher-risk firms.

That is no longer a conference debate. It is a recommendation with a timeline attached.

Why the question is being asked

The arithmetic is unforgiving. When Axiom Ince stopped trading in 2023, roughly £60m of client money had gone missing, with an estimated £39m of compensation payouts falling on the profession. PM Law adds around £30m more, against suspected fraud of £40m.

Every one of those failures involved money belonging to clients sitting in an account controlled by the firm that failed them. Remove the client account and you remove the mechanism.

What third-party managed accounts change

A third-party managed account, or TPMA, places client funds with a regulated payment provider. The firm instructs payments; it never holds the money. Adoption in England and Wales has been slow, largely because conveyancers and litigators regard the workflow as clunky and the fees as an unwelcome addition to already thin margins.

Those objections are real. They are also weaker than they were three years ago. Providers have improved, integrations with case management systems have matured, and the alternative — an ever-rising Compensation Fund levy — is not free either.

The practical consequences for firms

If the direction hardens, the effects reach well beyond compliance.

Interest earned on client account balances is a meaningful revenue line for conveyancing and probate practices, and in a higher-rate environment it has quietly propped up profitability at plenty of firms. That income disappears with the account.

Accounts rules compliance costs fall. Reporting accountant fees fall. But transaction fees appear, and someone has to decide whether the client or the firm absorbs them.

Our view

The profession should engage with this now rather than wait to be told.

There is a serious argument that holding other people's money is not intrinsic to being a solicitor — it is a historical convenience that has become a systemic liability. There is an equally serious argument that mandating TPMAs pushes cost and friction onto small firms to solve a problem created by a handful of large, badly run ones.

Both can be true. What should not happen is another rule arriving fully formed after the next collapse, with firms discovering the detail from a press release.