Solicitors’ Client Accounts…… are we about to see a lot less of them?

It has always been the traditional way to start a practice that the firm creates an office account, a client account and occasionally a savings account for taxes etc. Are we about to see the loss of the client account?

It is no secret that solicitors have been paying a lot of money for their Professional Indemnity Insurance. It is also no secret that SRA Accounts Rules audits each year can be a major headache for some firms. Both these elements are due to maintaining a client account, something which may no longer be necessary for many companies.

The new SRA Accounts Rules state in two separate rules how a firm can avoid the need for a client account.

New SRA Accounts Rules:

Rule 2.2:

2.2 In circumstances where the only client money you hold or receive falls within rule 2.1(d)

 (d) in respect of your fees and any unpaid disbursements if held or received prior to delivery of a bill for the same.


 (a) any money held for disbursements relates to costs or expenses incurred by you on behalf of your client and for which you are liable; and

 (b) you do not for any other reason maintain a client account;

you are not required to hold this money in a client account if you have informed your client in advance of where and how the money will be held. Rules 2.3, 2.4,

4.1, 7, 8.1(b) and (c) and 12 do not apply to client money held outside of a client account in accordance with this rule.

In essence, if the only monies received are for costs and disbursements, there is no need to run a client account and the monies can be paid straight into office account providing the firm has invoiced the client correctly. This could see many smaller and specialist firms do away with the client account altogether. We may also see more agreed fees and fixed fee arrangements. This will not only help with transparency on costing but will also help the firm with it’s cashflow. Rather than seeing money on account of costs, we will see fixed fee bills being paid on a more regular basis.

However, the new rule changes are not just going to affect small specialised firms. Practices who specialise in conveyancing and personal injury law for example, where large transactions regularly flow, now have an option of operating without a client account.

Rule 11.1

Third Party Managed Accounts

11.1 You may enter into arrangements with a client to use a third party managed account for the purpose of receiving payments from or on behalf of, or making payments to or on behalf of, the client in respect of regulated services delivered by you to the client, only if:

 (a) use of the account does not result in you receiving or holding the client’s money; and

(b) you take reasonable steps to ensure, before accepting instructions, that the client is informed of and understands:

(i) the terms of the contractual arrangements relating to the use of the third party managed account, and in particular how any fees for use of the third party managed account will be paid and who will bear them; and

(ii) the client’s right to terminate the agreement and dispute payment requests made by you.

 11.2 You obtain regular statements from the provider of the third party managed account and ensure that these accurately reflect all transactions on the account.

TPMAs aim to be a direct replacement of the client bank account. The funds are held away from the firm and are administered by the firm and the TPMA provider. TPMAs also seek to make fraudulent activity and cybercrime a lot harder by performing full ID and AML checks from the outset, digitally verifying the beneficiary account details.

Could we therefore start to see high-street practices and larger firms who utilise client accounts heavily, start to move away from them?

There would no longer be a requirement for the practice to have an SRA Accounts Rules audit and subsequent AR1 submission, saving the firm thousands of pounds each year. There is also a possibility that the Professional Indemnity Insurance premiums would reduce as the risk to client money would no longer lie with the firm, because it is not held there. The TPMA would however still need to appear on the accounts each month, be reconciled and for “best practice” signed off by the COFA. A full matter listing and COFA accounts check would be required along with full statements from the TPMA to ensure that all TPMA client monies are accounted for. The administrative burden of ID checks, AML checks and SRA AR audits however would be significantly lightened!

Could we therefore see in the future, firms taking advantage of these new rules and moving to TPMAs or losing their client accounts altogether? It is certainly possible with the attractive direct cost and administrative time cost savings that could be applied.

Alex Simons – New Business Manager
The Law Factory LLP

Back to the top ↑