Solicitors will soon be able to ditch client accounts and instead use “third-party managed accounts”, their regulator has revealed.
In a consultation issued yesterday, the Solicitors Regulation Authority said: “Client accounts are expensive to run, both for firms, and also in the costs of regulation associated with ensuring that they are not misused, accounting, investigations, and where necessary, compensation.
“The use of third-party managed accounts may offer a lower-cost alternative that continues to provide appropriate protection. Consumers, meanwhile, do not necessarily require their money to be held by lawyers, where funds can be disbursed directly from bank to bank.”
The move comes against the background of the Bar Council having introduced BARCO and the Legal Services Board putting alternatives to client account on the list of priorities for regulatory reform. As with the established Capra system in France, BARCO operate an escrow-style service and require a dual authorisation, on the part of the consumer and practitioner, to approve access to funds.
The consultation puts forward a list of “desirable” client protection features of third-party managed accounts against which a third party’s offering would be judged.
It puts forward two approaches to this assessment: under option 1, the SRA would approve all specific third-party managed accounts that may be used (either generally or in relation to a particular firm’s specific circumstances); with option 2, if all relevant safeguards can be identified up front, the SRA would place appropriate criteria in rules, and have no role in approving specific schemes.
“Option 2 would be the SRA’s preferred option, as it removes a layer of decision making and complexity for both the provider and the consumer of that product.”
The SRA said the changes would not be implemented until November 2015. “This approach is intended to provide flexibility and increased protection for consumers ahead of the third and final phase of the review of the SRA accounts rules.
“Given that the current accounts rules do not prevent the use of alternative arrangements, the SRA considers that there is no good reason to deny practitioners the flexibility offered by the new approach until the next version of the Handbook is released. We will therefore consider any request to use such an arrangement on a case-by-case basis.”