By Legal Futures Associate Kord [1]
The ‘failure to prevent fraud’ offence under the Economic Crime and Corporate Transparency Act 2023 has been in force since 1 September 2025, creating personal and corporate liability for firms that can’t show ‘reasonable procedures’ to prevent fraud, including misappropriation of client money.
For many firms, the challenge lies in the gap between modern regulatory expectations and legacy accounting practices. Relying on manual reconciliation or outdated pooled account structures no longer provides a sufficient shield against regulatory scrutiny, forcing leaders to reconsider the fundamental mechanics of their client money handling.
If you’re still holding client funds the old way, it’s worth asking whether you could evidence that today.
The rules are tightening
It’s one of several pressures on how firms hold client money. New reporting rules for pooled client accounts are now in force, and third-party managed accounts (TPMAs) are expected to become the norm within two to three years.
This isn’t experimental either. The SRA endorsed TPMAs as a safer alternative back in December 2017, updating that guidance in November 2019.
What happens when it goes wrong
A high-profile firm collapse in February, which saw the SRA seize 24 offices and leave tens of thousands of client matters stranded, shows what goes wrong. Fines for these breaches typically run to 1 to 2% of a firm’s revenue, before litigation or reputational damage.
A TPMA is an escrow-style account owned and held by an FCA-regulated third party rather than the firm. Because the firm never receives the money, it falls outside the definition of client money under the SRA Accounts Rules, though firms must still tell clients how their money is held, keep records current, and notify the SRA once they bring a provider on board. Duty of care doesn’t disappear either: firms must still check the arrangement suits each client and keep those records under review.
How Kord closes the gap
Kord Custody is built to tie client money and client identity together instead of leaving them in separate systems where oversight breaks down. Built originally for litigation firms handling settlement and award money, it applies to any firm affected by the new pooled account rules.
This shift away from centralised pools addresses the primary vulnerability in law firm accounts: the lack of visibility when funds and case data drift apart. By locking the identity of the client to the specific movement of their funds, firms can eliminate the blind spots that often invite regulatory scrutiny.
Each matter gets its own segregated sub-account, removing the commingling risk of a shared client account. Money goes straight into the Custody account, payments are checked against Confirmation of Payee, and every transaction lands on a real-time, SRA-friendly audit trail that firms can hand to regulators on demand.
Join the webinar
Kord is hosting a free webinar, Client Money on Trial: TPMAs Are Coming for Law Firms, on Tuesday 8 September 2026 at 2:00 pm BST. David Casey, Payments Account Executive, and Yazad Bajina, Chief Commercial Officer, will spend 45 minutes on regulatory pressure, what a TPMA change means, and a look inside Kord, with live Q&A. It’s aimed at compliance officers, MLROs, finance directors, and managing partners, and anyone who can’t attend live will still get the recording. Register at kord.com [2]