The Institute of Legal Finance & Management (ILFM) hosted its annual conference on 22 May 2025, featuring a keynote session from Jonathan Chambers, a forensic investigator at the Solicitors Regulation Authority (SRA). The session provided valuable insights into the ongoing consultation on client monies and the SRA’s current regulatory focus.
Consultation: Key Themes Emerging
The SRA received 450 responses to its consultation on client monies, including submissions from both the ILFM and Hazlewoods. While no final decisions have been made, several potential outcomes were discussed:
- Accountant’s Reports and Declarations: 41% of ILFM members supported either the compulsory submission of the Accountant’s Report or an annual declaration (by the firm or reporting accountant) confirming that an audit had taken place. The SRA is also considering the introduction of late filing penalties, similar to those imposed by HMRC and Companies House.
- Compliance Officer Restrictions: There is a proposal to prevent individuals with unilateral control over client accounts from acting as compliance officers. For smaller firms and sole practitioners, this could present practical challenges. One option under consideration is requiring SRA approval for individuals holding multiple roles, potentially subject to enhanced supervision.
- Residual Balances and Timeliness: Many respondents expressed a desire for clearer guidance on residual balances, particularly around the interpretation of the term “promptly”. There appears to be a preference for a return to more prescriptive rules in this area.
- Interest on Client Monies: A notable new proposal is the potential prohibition of law firms earning interest on client monies, with such interest possibly being redirected to the Crown. This marks a significant shift in approach, with the aim of creating a framework more favourable to consumers.
It was emphasised that no immediate changes are expected. Any formal proposals will be subject to further consultation, ensuring the sector has ample opportunity to provide feedback.
Regulatory Activity and Future Guidance
There are likely to be further consultations on any proposals they want to make, so there are no changes incoming imminently.
However, Jonathan Chambers also highlighted the SRA’s recent regulatory activity:
- Spot Checks and Investigations: The SRA has conducted 598 spot checks to assess firms’ compliance with Accountant’s Report requirements and the handling of residual balances. Additionally, 30–40 targeted investigations have been launched into accumulator firms, with a particular focus on high-volume consumer claim practices.
- Rule 3.3 Case Studies: The SRA plans to release further case studies to clarify Rule 3.3, which governs the provision of banking facilities. These will include examples related to trustee work and payments from completion funds in property transactions—areas often characterised by nuanced scenarios.
These developments underscore the SRA’s continued focus on transparency, accountability, and consumer protection within the legal sector.
For firms seeking clarity or support in navigating these evolving requirements, please get in touch with the team.