The Solicitors Regulation Authority (SRA) has sounded a warning to firms reliant on client account interest income with a consultation to be launched next week which may result in reform of accounts rules and changes to the compensation fund.
SRA Chair Anna Bradley has indicated reform to tighten the rules on client account interest and residual balances could be coming for firms who see them as a source of income as a new report shows for one in six firms surveyed client account interest is more than 10% of turnover.
“For some people (residual) balances are seen as a source of income,”
said Bradley, adding
“We have heard worrying things from some firms that if they didn’t have that cash they would be in some difficulty. But that is not what that cash is there for.”
Alongside the future of client accounts, the SRA will launch a consultation next week split into three elements: client accounts, rules on accountants’ reports and the compensation fund following its consumer protection review and the criticism the regulator has received in the wake of the Axiom Ince collapse.
Third party providers of customer monies is one option being explored but there would need to be more development in terms of potential third-party providers before such a radical reform Bradley told Law Society publication The Gazette. Regulation of solicitors’ accounts could also be reviewed after the number of accountants’ reports submitted fell from 2,000 in 2016 to 500 in 2023; rules abolished in 2015 required firms to submit every accountant’s report. A return to similar regulation has been mooted.
The future of the compensation fund has been widely discussed in recent years with the current requirement for firms and solicitors to split the financing of the fund equally under review. Following similar decisions to weight the redress contribution of worst offending firms, the SRA will review position that all firms pay the same contribution regardless of size or risk factor.
The consultation will last three months with the SRA indicating no decisions will be made until the middle of next year at the earliest.
