Port: No tangible benefits to clients
The Solicitors Regulation Authority’s (SRA) plans to reform consumer protection arrangements are disproportionate, risk undermining public confidence and will not work, the five largest local law societies have warned.
The long-term plan to do away with solicitors holding client money “appears to be a reaction” to a handful of high-profile failures – “in which context, the SRA has faced criticism from the Legal Services Board”, they noted – rather than evidence of systemic issues.
The so-called Joint V is an informal grouping of the five largest local law societies: Birmingham, Bristol, Leeds, Liverpool and Manchester. Together they represent over 15,000 solicitors.
They have submitted a joint high-level response to go with their individual responses to the detail of the SRA’s three consultations – covering the model of holding client money, protecting client money and changes to the Compensation Fund.
“The proposed reforms risk undermining trust in the profession without delivering tangible benefits to consumers,” said Richard Port, president of Birmingham Law Society. “The SRA should focus on improving its own regulatory effectiveness before imposing new burdens on firms.”
The idea of solicitors not holding client money “is disproportionate and poorly justified”, the joint response said, and could undermine trust in the profession.
The regulator had not explained how moving to a small number of third-party managed account (TPMA) providers instead would be safer, adding that it would also lead to “significant job losses in law firms’ finance teams and increase costs to clients”.
The suggestion that law firms were incentivised to retain funds in client account to generate interest was “misconceived”, the societies went on, “and demonstrates a lack of understanding of the profession and the importance which solicitors place on acting in their clients’ best interests”.
The SRA had not “adequately” engaged with the costs and challenges involved in operating a client account facility, “nor the myriad circumstances in which client balances can arise unavoidably in many cases”.
Showing a similar lack of understanding, the response went on, was the proposed 12-week timescale for dealing with residual balances.
This was “unrealistic and impractical, especially for complex transactions, such as those involving mergers, property matters, international clients, or vulnerable or deceased clients”. The existing obligation to deal with them promptly provided the “appropriate flexibility”.
There was, however, support for the proposals to improve the SRA’s internal processes, including reintroducing the annual submission of accountants’ reports
“Instead of implementing disruptive, knee-jerk reforms, the SRA should focus on targeted improvements to its own processes and enforcement of existing rules,” the response said.
“By working collaboratively with the profession, the SRA can achieve its objectives while maintaining public confidence in the legal sector and ensuring access to justice.”
Highlighting its individual response, Jayne Willetts, chair of Birmingham Law Society’s professional regulation committee, said: “Apart from the inherent risks of involving third parties in handling client money, such a move would irreparably damage the solicitor brand if the profession were prevented from handling client money. The profession must handle client money. It is part of its raison d’etre.
“Client account is inextricably linked to the delivery of legal services and should not be abandoned on the altar of two or three high-profile failures for which the SRA must acknowledge some responsibility.
“The SRA must focus on its core responsibilities and improve its monitoring of the management of client monies rather than being diverted to non-essential projects.”
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