Managed account: New options for lawyers
Barco, the Bar Council’s third-party escrow service, has shut down after “suitable” commercial providers entered the market.
Barco was launched in 2013 with 10 chambers piloting it and enabled barristers to handle client money – through direct access work or receiving fees in advance – without adopting the type of client account regulation faced by solicitors.
In fact, in March 2016, a law firm regulated by the Solicitors Regulation Authority (SRA) signed up, while solicitors’ firms that have chosen to be regulated by the Bar Standards Board also used it, as have barrister entities.
However, the Bar Council said last week that it had reviewed Barco’s feasibility “as part of a wider commercial review across all areas of the Bar Council’s services and products”.
It said: “As it now stands, in July 2018, there are a number of providers in the market. Two in particular, Shieldpay and Transpact, have been identified as suitable escrow providers for the self-employed Bar.
“Their terms of service have been reviewed for ethical compliance by a member of the Bar Council’s ethics committee. In July 2018, the Bar Council’s General Management Committee decided that Barco can cease operations.”
The Bar Council explained that Barco has been largely subsidised by funds from training and events surplus and business partnerships, “as the income from fees and charges has not matched the costs and expenditure incurred in delivering the service”.
It added: “Given the suitability of other providers, it is felt that it is no longer the best use of funds to continue operating the escrow.”
The ethics committee is to revise the ethical guidance on handling client money as a result.
In May, Shieldpay took the place of conveyancers in handling the finances on completion day in what has been claimed to be the UK’s first fully digital mortgage settlement.
The new SRA Handbook next year will also make it clear that third-party managed accounts will be acceptable for law firms.
Meanwhile, the SRA has updated its warning notice about the improper use of client accounts as banking facilities for clients, and published 11 case studies to help law firms understand the types of instances when paying money into the client account may or may not be acceptable.
In the last year, the SRA has prosecuted 20 solicitors and three firms for breaches in this area. Three solicitors were struck off and two more suspended, while the Solicitors Disciplinary Tribunal also levied £763,000 of fines, including the highest fine ever of £500,000.
The SRA’s rules say that law firms should only have money linked to an underlying legal service going through their client account.
There must also be a proper connection with those receiving those funds and the legal services the firm has provided.
It said risks in holding money otherwise include assisting money laundering, helping someone avoid their obligations in an insolvency situation, or improperly hiding assets in a commercial or matrimonial dispute.
Firms could not justify processing money through the client account due to having a retainer with a client, it added, and cautioned against firms holding funds to enable them to pay a client’s routine outgoings, for instance when based abroad: “With technological advances, this is no longer justifiable.”
SRA chief executive Paul Philip said: “Law firms are not regulated to operate their client accounts as a banking facility for clients. They should not trade on their reputation to provide banking facilities, which can result in significant risks for the firm, as well as their clients and the wider public.”
Leave a Comment