The Solicitors Regulation Authority (SRA) may not allow solicitors to pass on to clients the cost of holding their money if negative interest rates become a reality, an official has suggested.
Though never before seen in the UK, the bank rate is currently at a record low of 0.1% and in September the Bank of England and the Prudential Regulation Authority began exploring how a negative interest rate could be implemented effectively.
Last week, we reported that Ian Johnson, chair of the Institute of Legal Finance & Management, was urging law firms to change their retainers now so they could charge clients for holding their money, given the “possibility, if not likelihood” of negative interest rates.
He predicted that the SRA would let firms recharge any cost of having client accounts, but SRA policy officer Jatinder Loyal cast doubt on that last week.
Speaking at the virtual conference on the Institute of Chartered Accountants in England & Wales’s solicitors group, Mr Loyal said he would “probably say no” to whether the SRA would allow this – although no decision has been made.
“It’s not in the client’s interest to pick up the cost of the economy,” he said, adding that the SRA would issue guidance if necessary.
He said the Law Society was looking at the issue as well. But the society indicated that it was waiting for the regulator.
A spokeswoman told Legal Futures: “We are aware that, due to the current Covid-19 crisis, the Bank of England is considering a number of potential policy tools to help the economy, including a negative bank rate.
“This is presently a hypothetical scenario. The situation is being monitored together with potential implications on the profession, and we await an indication from the SRA on its regulatory position.”
During the same session, Sean Hankin, the SRA’s head of forensic investigation and intelligence, said the number of qualified accountants’ reports received by the regulator continued to fall, with just 807 so far this year, compared to 1,139 in 2019, 1,323 in 2018 and 1,663 in 2017.
The overall trend was due to accountants only having to report ‘significant’ breaches, and Mr Hankin suggested this year’s number is probably artificially low because of the greater flexibility the SRA has allowed because of Covid-19.
The regulator is also taking less action – 11% of qualified reports led to action last year, compared to 9% this year. Mr Hankin said this was probably because there was a new process for dealing with residual balances, which continue to be a problem seen at a lot of firms.
The key was for firms with residual balances to have a plan to deal with them, he said.
However, the SRA was seeing far fewer cases of business money being held in client accounts and minor “scattergun” qualifications of firms’ accounts.