SRA consumer protection review: client accounts vital for legal services

Firms should continue to be able to operate client accounts, as they are vital for the effective delivery of many legal services, the Law Society of England and Wales said today in response to the Solicitors Regulation Authority’s (SRA) consumer protection review discussion paper.

Law Society president Nick Emmerson stated, “The SRA is considering whether or not firms should hold client money or whether some form of restrictions ought to be introduced.” He highlighted that the ability to handle client money is a crucial distinction between solicitors as regulated professionals and unregulated service providers, and that client accounts are essential for the efficient and effective delivery of many legal services.

While acknowledging that most firms comply with all the rules, Nick Emmerson pointed out that a few exceptional cases of abuse require careful consideration of appropriate safeguards to reduce risks to consumers. He noted that despite a recent increase in SRA interventions, the yearly average for the period 2020-2023 was 39 interventions, lower than the historical average of 42.5 from 2010-2023.

The Law Society has requested more information from the SRA regarding recent interventions, including reasons, types of entities involved, and common themes. They await this information to provide a constructive response on minimising potential consumer risks.

Addressing concerns about firms’ structures and ownership modes, Nick Emmerson mentioned the high-profile collapses of Metamorph, Kingly, and Axiom Ince as reasons for the Law Society’s reservations about the legal consultancy and accumulator firm models. He expressed disappointment that the deadline for responding to the SRA’s discussion paper precedes the findings and recommendations of the Legal Services Board’s (LSB) independent review into the SRA’s regulatory actions leading up to the collapse of Axiom Ince and the SSB Group. This timing limits the Law Society’s ability to offer focused feedback, and Emmerson suggested incorporating “lessons learned” to ensure future policy changes address the most significant risks.

On the topic of the Compensation Fund, Nick Emmerson emphasised its importance as an essential last line of defense for clients. He noted that the Fund has been the subject of two major SRA consultations since 2018 and reaffirmed the Law Society’s commitment to it. Nick Emmerson expressed willingness to consider any evidence-based proposals from the SRA to ensure the Fund’s long-term sustainability.

In conclusion, despite the lack of supporting data in the discussion paper, Nick Emmerson welcomed the SRA’s new approach to policy-making, which involves seeking input from stakeholders before launching formal consultations. The Law Society looks forward to engaging with a fully evidenced formal consultation on consumer protection issues later this year.