SME law firm membership body LawNet has defended the model of law firms holding client monies and says it believes there are no ‘credible alternatives’ to the client account model in its submission to the SRA consultation which closed at the end of February. Indeed the mutual goes as far as suggesting some of the proposals reveal a lack of understanding of how law firms operate day to day.
The 178 page document has drawn feedback from across the 66 member network, which represents firms ranging from £2m to £25m turnover, employing more than 3,000 lawyers across England and Wales, with the overwhelming sentiment being the proposed alternatives are
“less efficient, more expensive, detrimental to client protection and most importantly, severely lacking in capacity to serve needs. Importantly, firms argue that changes would lead to lower, not higher, levels of consumer protection.”
Alternatives, such as Third-Party Managed Accounts (TPMAs) or centralised client money handling, are not viable solutions and would introduce unnecessary costs, inefficiencies, and weaker consumer protections. The proposals to introduce prescription regarding advance payments reveal a lack of understanding of how firms work, says the submission.
The organisation is led by former banker and head of professional practices at Lloyds Banking Group,Chris Marston, who explained
“We haven’t pulled any punches in this response as our members had very strong views, but these reactions aren’t just anti-change, they are backed up by reasoned arguments. These views are representative of a substantial and diverse group of firms; a group which sets high, voluntary standards on top of the requirements set by their regulator. All members must maintain our own ISO-9001 quality standard, our Excellence Mark for client delivery, and carry a minimum £10m of PII cover.”
The current client account model is well established and effective, protecting consumers in the view of LawNet. The consultation is based on ‘flimsy research’ and does not present a compelling case for change says Marston, premised on ideology, rather than evidence he adds. In a starkly worded response any link to the Axiom Ince case is unfounded said Marston.
“The Axiom Ince case was not a failure of the client account model: it was a catastrophic regulatory failure. We were disappointed that only five out of forty four questions in the SRA’s consultation were focused in any way upon improving regulatory oversight outside of the practising certificate renewal cycle. The focus should be on better oversight and greater proactivity, not dismantling a system that continues to be fit for purpose.”
While acknowledging firms do use interest income to their benefit, the reality of negligible interest rates in the years between 2008 and 2022 meant firms benefitted very little from client account interest; and recent increases have helped firms absorb rising operational costs, without passing them on to clients; something the SRA has failed to acknowledge say LawNet. Like The Law Society, who have similarly hit back at the proposals, the mutual have called on the SRA to address concerns it is out of touch with commercial realities and rebuild trust with its regulated community.
Concluding, Marston addshttps://todaysconveyancer.co.uk/law-society-hits-back-at-client-money-consultation/
“My previous role, as a senior sector-specialist banker, gives me an insight into how client accounts work from both sides of the banking relationship, and the practicalities for firms and their clients. I trained over 150 specialist relationship managers at Lloyds Bank to understand the Accounts Rules. Our members’ responses to our survey were detailed, nuanced, comprehensive and rooted in the real world of law firm operations. They understand their obligations under the Rules, specifically in Rule 7.1 regarding the payment of a fair sum of interest to clients. Their responses displayed a depth of understanding that, frankly, was absent from many of the consultation proposals.
“This has been a major work to deliver, making an important contribution to the consultation exercise, and we hope that the SRA will find our members’ comments informative and useful. Client accounts are efficient, work to the benefit of clients and offer higher levels of consumer protection than any of the alternatives that have been suggested. I’m not alone in seeing it as perverse that the SRA should suggest an exercise in regulatory arbitrage that so many of us believe would lead to higher costs and lower levels of protection.”
