Blandy: TPMAs offer potential to reduce risk
Firms of licensed conveyancers will only be able to use third-party managed accounts (TPMAs) if it is in each client’s best interests, their regulator has proposed.
Draft guidance published for consultation [1] says they can also only use TPMAs that are regulated by the Financial Conduct Authority, while firms must also be authorised by the Council for Licensed Conveyancers (CLC) to enter arrangements with a client to use a TPMA.
There is growing interest in TPMAs as a way to reduce the risk of holding money in client accounts and the Solicitors Regulation Authority has joined the CLC in backing their use.
The CLC is pressing ahead with them following a consultation on revising its accounts code last year [2] and the new consultation is on the proposed guidance accompanying the code.
Funds held in a TPMA are not client money, as they are not held or received by a CLC practice, and so are not subject to much of the code.
But the draft guidance said that using a TPMA would not release the CLC practice from the requirement to act in the best interests of its clients, “so the firm must ensure that the decision to use a TPMA, and the TPMA provider used, is appropriate in the circumstances of each case”.
Alongside this and the authorisation of the CLC, the firm would have to tell the client about the arrangement and that the consumer protections applying to TPMAs were different to those applying when holding money in a client account.
The CLC has supported the development of TPMAs, saying it sees the potential benefits for clients and practitioners.
In 2018, it helped facilitate a pilot that saw a payment processor take the place of conveyancers in handling the finances on completion day, in what was the UK’s first fully digital mortgage settlement [3].
The consultation also deals with guidance on the management of ‘aged’ client balances – money left in client accounts for more than 12 months after a transaction has ended.
CLC practices would be allowed to determine – without needing the regulator’s permission – whether any balances of up to £50 should be transferred to the office account, paid to a charity or to the CLC’s compensation fund. The original consultation put the figure at £10.
Where the money was paid to the office account or a charity, the firm would remain liable to pay it to the rightful recipient in the event they claim it. Any balance of more than £50 would need to be paid to the CLC.
The rewrite of the accounts code will see a substantially shorter, outcomes-focused set of rules. Following responses to the first consultation, the CLC has decided not to reduce the time limit for delivering an accountant’s report from six to three months.
Simon Blandy, director of regulatory standards at the CLC, said: “TPMAs offer an alternative way for client funds to be handled with the potential to reduce risk.
“We believe that the rules and guidance we are proposing strike the right balance between the need for consumer protection and greater freedom for those we regulate to innovate, compete and grow.”
The consultation closes on 25 March. Once the responses have been considered, the CLC will make an application to the Legal Service Board for approval.