On 21 September, the Solicitors Regulation Authority (SRA) published its long-awaited update on the consultation Client Money in Legal Services: Safeguarding Consumers and Providing Redress. More than seven months had passed since the consultation closed, during which the SRA received over 450 responses, including event feedback, consumer input and detailed commentary from across the legal sector.
The topic continues to attract strong attention, and the latest update provides some clarity while leaving several major questions open for future review.
Summary of the SRA’s Position
The SRA has chosen not to introduce immediate structural reform to the management of client accounts. Instead, the regulator has focused on strengthening safeguards within the current model. Broader or more radical changes will be explored in a later phase, with a progress report and further consultation planned for later this year.
For many firms, this decision offers short-term stability while signalling long-term scrutiny.
Industry Reaction
Feedback from the profession has been forthright. Many respondents argued that removing the ability for firms to hold client money would increase costs, slow transactions and reduce access to justice. The Law Society of England and Wales noted that the evidence base for major change remains limited. It also highlighted the potential for disproportionate impact on conveyancing, probate and commercial practices.
The message from the sector is clear: any major reform must be backed by stronger data and a full appreciation of the operational realities faced by firms.
Why This Matters for Law Firms
For practices involved in conveyancing, commercial transactions, probate or other work where client money plays a central role, any shift in the current model would be disruptive. Even without structural reform, regulatory expectations are already evolving and should be monitored closely.
Active Regulatory Attention
Although significant structural change is paused for now, the SRA is already increasing its focus on how firms handle client funds. Key areas of attention include:
- Increased scrutiny of how firms hold, move and reconcile client money.
- A stronger expectation that residual client balances are returned promptly when matters conclude.
- Closer assessment of how firms calculate, record and distribute interest earned on client funds.
The SRA has made it clear that policies must be transparent, compliant and fully documented. Opaque or inconsistent approaches are attracting scrutiny.
Practical Steps for Firms
To remain prepared and compliant, firms should consider taking the following actions:
- Review client-money processes: Check that reconciliations are completed accurately and on time, residual balances are handled promptly and interest arrangements are fair and clearly communicated.
- Prepare for the next consultation phase: The SRA intends to revisit structural questions surrounding the Compensation Fund and the wider client-money model. Firms should remain engaged, respond to consultation opportunities and ensure leadership teams understand what potential future changes may entail.
What Happens Next
The SRA’s latest update provides firms with some breathing room, but the debate around the future handling of client money is far from settled. Further reform remains a real possibility.
To stay fully informed, firms should subscribe to SRA consultation alerts and review the materials already published on the SRA website. Proactive monitoring will be essential as the regulatory landscape continues to evolve.
*This article was originally published by Express Legal Limited. You can view the original article here:
https://xpresslegal.co.uk/complex/client-money-under-scrutiny-sra-breaks-its-silence/