Best: Questions for solicitors
Proposed government changes to anti-money laundering (AML) rules around pooled client accounts (PCAs) could raise issues around client confidentiality and privilege, experts have warned.
HM Treasury this week published the draft Money Laundering and Terrorist Financing (Amendment and Miscellaneous Provision) Regulations 2025 for technical consultation. They implement reforms announced in July that aim to improve the regime.
One of the goals is to increase the supply and accessibility of PCAs, which it noted were used by solicitors among others to hold client funds on behalf of a number of different clients.
A policy note published alongside the regulations explained that the draft regulations decouple PCAs from the simplified due diligence framework – which limited who financial and credit institutions could offer PCAs to – and introduce a new provision requiring them to take reasonable measures to understand the purpose of the PCA and assess the risk, and then if needed put controls on the PCA to manage it.
Further, holders of PCAs must, on request, provide the bank with information about the identity of persons whose funds are held in the account. “This is intended to ensure transparency and facilitate effective oversight, without requiring banks to conduct CDD on all underlying customers,” the Treasury said.
Colette Best, former head of AML at the Solicitors Regulation Authority and now director of AML at City law firm Kingsley Napley, said that while the changes gave banks greater flexibility to consider the risk posed by a client account and manage it accordingly, the requirement for law firms to provide details of their clients could be a major challenge.
“The draft regulations contain a provision that this disclosure would not breach ‘any restriction, however imposed, on the disclosure of information’,” she explained.
“This raises a number of questions for solicitors, in particular whether this will override the trust in the confidentiality of the solicitor-client relationship, and how firms can manage competing duties of LPP [legal professional privilege] with the duty of disclosure.”
Julie Norris, a legal services regulation partner at Kingsley Napley, added: “Law firms will need to have a plan in place to deal with requests from banks asking for information about the identity of the persons on whose behalf monies are held in pooled client accounts – I can foresee challenges with LPP, even if the statutory carve out overcomes the client confidentiality hurdle.”
In an article on LinkedIn, Luke Haddon, the money laundering reporting officer at listed firm Keystone Law, said: “Pooled client accounts will now face greater scrutiny from banks, who must risk-assess firms directly.”
He predicted that law firms would likely face annual requests for evidence — policies, training records, risk assessments — to prove they were low risk.
“Oversight is effectively being outsourced from statutory regulators to non-statutory gatekeepers, creating more reporting obligations, not fewer.
“The challenge is compounded by the National Risk Assessment’s repeated description over the years of law firms as ‘professional enablers’. With that framing, can any bank realistically mark a law firm as low risk?
“The more likely outcome is an added burden of having to evidence to banks what checks have been done by that firm on source of funds, placing it squarely on firms to prove the legitimacy of client monies, even when those funds flow from UK banks subject to the same AML standards and transaction monitoring.”
Legal regulation specialist Frank Maher, a partner at Keystone, said: “The draft regulations if passed will increase banks’ customer due diligence obligations in relation to pooled accounts. We have already seen a bank requesting more information on an overseas law firm’s client account.
“Law firms should consider reviewing their terms of business to seek consent to respond to bank requests for information which is confidential and may be privileged.”
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