The Solicitors Regulation Authority (SRA) consultation on client money has been one of the most closely watched regulatory reviews in recent years. With billions of pounds flowing through client accounts at any given time, the stakes are high. The consultation has sparked debate across the profession, drawing an unprecedented 450 responses, making it the most widely engaged consultation in the SRA’s history.
This article explores the background, the latest developments, and most importantly the implications for law firms, finance teams, and clients who entrust solicitors with their money.
BACKGROUND: WHERE HAS THE SRA CONSULTATION GOT TO?
The consultation formed part of the SRA’s broader Consumer Protection Review, focusing on three interlinked areas:
- The model of solicitors holding client money – whether firms should continue to hold such large sums.
- Protecting the money that is held – ensuring stronger controls, oversight, and processes.
- The Compensation Fund – making sure claims are paid fairly and sustainably.
The review was launched against a backdrop of rising regulatory breaches (notably the more recent 2023 collapse of Axiom Ince following the improper use of over £60m of client money), cybercrime risks, and high-profile cases of client money mismanagement. With some firms holding £100m+ and even £1bn+ at various times, the consultation became a pressing issue for public trust.
WHY THE CONSULTATION MATTERS
Trust sits at the heart of the solicitor-client relationship. When clients hand over their money for property purchases, personal injury settlements, or inheritance claims, they expect absolute security. The SRA has highlighted several reasons why reform is essential:
- Scale of the risk – billions are held in solicitors’ accounts, sometimes with weak or inconsistent safeguards.
- Rising incidents – regulatory breaches tied to mishandling client money are increasing.
- Public interest – confidence in the profession depends on the assurance that client money is safe.
For solicitors, especially smaller practices, this debate is also about financial viability. Interest earned on client accounts can be a valuable source of income, and tighter restrictions could impact cash flow.
WHAT CHANGES DID THE SRA PROPOSE?
The consultation explored multiple reforms, including:
- Residual balances – imposing stricter timeframes for returning unclaimed client funds, alongside clear rules for donating untraceable balances to charity.
- Interest on client accounts – considering whether firms should be banned from retaining interest, ensuring that clients benefit fully.
- Transfers to office accounts – restricting when firms can move money to prevent premature withdrawals.
- Advance fees – assessing whether caps or rules should be introduced to stop firms holding excessive sums upfront.
- Alternatives to holding client money – exploring models such as Third-Party Managed Accounts (TPMAs) or escrow accounts.
Each proposal created tension between protection versus efficiency, fairness versus firm sustainability, and prescriptiveness versus flexibility.
THE SRA’S LATEST RESPONSE: ALTERNATIVES TO HOLDING CLIENT MONEY
The consultation process generated 450 responses, the highest ever for an SRA consultation. Firms, stakeholders, and consumer groups engaged deeply, reflecting the importance of the issue.
The SRA’s long-awaited update, originally expected in July, finally arrived in September 2025. The outcome:
- No immediate removal of client accounts – law firms will continue to hold client money for now.
- Focus on safeguarding under the current model – strengthening controls and oversight to protect against risk.
- Ongoing review of long-term alternatives – the SRA acknowledged that moving away from the current system requires careful planning and collaboration.
Crucially, the regulator recognised that the root causes of safeguarding risks cannot be solved overnight. A wholesale shift to alternative models, such as TPMAs, would require an industry-wide change, which is not feasible in the short term.
HOW FINANCE TEAMS CAN BETTER PROTECT CLIENT MONEY
For law firms, safeguarding client money is not simply about compliance, it’s about building trust and resilience. Finance teams play a critical role, and the following five areas should be top priorities:
TRAINING
Regular and relevant training on the SRA Accounts Rules ensures cashiers and finance staff are equipped to spot risks and maintain compliance.
SOURCE OF FUNDS CHECKS
Robust due diligence on the legitimacy of client funds is essential. Firms must ensure processes are clearly evidenced and documented, leaving no room for ambiguity.
SEGREGATION OF DUTIES
Splitting responsibilities across roles prevents conflicts of interest and reduces the risk of fraud. Even in smaller practices, firms must plan to separate cashiering tasks from management approvals.
SYSTEMS AND CONTROLS
Every cashiering process should be properly documented and retained, ensuring continuity in the event of staff turnover. It’s also important to have a clear and well-documented trail from initiation right through to approval – that way, nothing gets lost in translation and accountability is crystal clear. Bank reconciliations must be performed at least every five weeks, and residual balances should be actively managed through regular review. Suspense accounts should be avoided wherever possible (or at least limited and cleared down to nil on a regular basis).
WHISTLEBLOWING FRAMEWORKS
Clear and up-to-date whistleblowing policies empower staff to raise concerns early, strengthening internal oversight.
By embedding these measures, firms can proactively reduce risks and align with the SRA’s focus on safeguarding client money.
THE ‘WHAT NEXT’: LOOKING AHEAD
The SRA has made it clear: client money remains a top regulatory priority. However, reform will come in stages.
- A progress report is expected later this year, providing further insight into residual balances and the Compensation Fund.
- The regulator will continue to explore long-term alternatives to client accounts but acknowledges the need for a gradual, collaborative approach.
- In the meantime, the message to firms is clear: strengthen safeguards now.
For law firms, this means a renewed focus on compliance, systems, and training. For clients, it offers reassurance that the protection of their money is firmly on the regulatory agenda.
The SRA consultation highlights just how vital safeguarding client money is to trust in the profession. While major reform is on hold, the focus on stronger controls and accountability is here to stay.
Protecting client money isn’t just compliance; it’s about trust, reputation, and long-term success. Here at Cooper Parry our team has years of experience across the professional services industry, supporting solicitors and law firms, helping them stay ahead of change and strengthen their finance functions.
Get in touch today and let’s make sure your firm is ready for what’s next.
