The Client Account Evolution: Preparing for Regulatory Change in an Uncertain Environment

The Solicitors Regulation Authority’s recent decision to delay immediate changes to client account arrangements is a significant moment for law firm finance leaders. Although the regulator has stepped back from sweeping reforms following its extensive consultation that generated over 450 responses, the highest engagement in SRA history, the underlying message remains clear: transformation is inevitable.

The SRA’s consultation response explicitly acknowledged “there is a strong case to properly explore the long-term transformation of the model of holding client money.” However, immediately following the consultation, the regulator’s focus will be how to better protect and safeguard client money under the current system. Most, if not all, firms will be satisfied with this outcome, but I suspect will not be overly excited by the SRA’s new focus, because safeguarding client money is nothing new for prudent firms. In well-run practices, security of client funds has always been the top priority when choosing a bank or managing client accounts, far outweighing any pursuit of higher interest or convenience.

For finance leaders and the banks that support them, this creates both breathing space and a time incentive to prepare strategically for eventual change.

The Strategic Implications of Regulatory Uncertainty

The consultation’s postponement doesn’t signal abandonment of reform ambitions. Rather, the SRA has committed to returning to the “longer-term question of solicitors holding client money” after implementing enhanced safeguards. This phased approach creates a unique strategic opportunity for forward-thinking firms to position themselves advantageously while competitors remain reactive.
The financial implications are substantial. Currently, three-quarters of regulated firms hold client money, with many generating meaningful revenue from interest differentials. Interest rates on client accounts vary dramatically between providers—with some firms earning gross rates north of the BoE base rate, while paying clients a relatively small fraction. This approach and income stream faces existential uncertainty.

Scenario Planning for Alternative Arrangements

Progressive finance leaders should be developing comprehensive scenario analyses around three potential outcomes: enhanced oversight with retained client accounts, adoption of Third-Party Managed Accounts (TPMAs), and hybrid models combining traditional and alternative arrangements.

Under enhanced oversight scenarios, firms should anticipate stricter compliance requirements, including more frequent accountant reports, enhanced cybersecurity mandates, and prescriptive timeframes for returning residual balances. The current consultation suggests a 12-week deadline for returning client funds post-completion.

The TPMA scenario presents more fundamental operational changes. These FCA -regulated providers offer outsourced client money management, removing regulatory exposure in theory while potentially increasing transaction costs. Early analysis suggests TPMA costs range from subscription-based models to per-transaction fees, requiring detailed financial modelling against current client account income.

Positioning for Competitive Advantage

Finance leaders who view this regulatory uncertainty as opportunity rather than threat can create significant competitive advantages. Firms that remain open minded about the possible permutations and proactively develop expertise in those scenarios will be better positioned when regulatory changes eventually materialise.

Form a banking perspective, this regulatory uncertainty creates strategic opportunities for banks to differentiate their offerings to legal sector clients. Forward-thinking banks are already developing sophisticated solutions that address both current compliance requirements and potential future changes.

Strategic Recommendations

The immediate priority is developing regulatory scenario planning that quantifies the financial impact of each potential outcome. This requires detailed analysis of current client account profitability, including hidden administrative costs.

Finance leaders should also be building strategic banking relationships with providers offering forward-looking solutions rather than just competitive interest rates. The banks that will add most value are those that can provide, enhanced protection of clients’ funds, those that have an ethos of investing in technology infrastructure and service capabilities that adapt to changing requirements.

The SRA’s decision to postpone immediate action provides valuable time for strategic preparation. Finance leaders who use this period to build capabilities, develop partnerships, and create operational flexibility will emerge stronger regardless of the eventual regulatory outcome. The question isn’t whether change will come, but whether your firm will lead with initiative or take a reactive approach when it does.