SRA further consultation on client money in legal services – Law Society response

The proposals

Since July 2024, the SRA has been consulting on ways to mitigate risks to client money and ensure clients are protected when using regulated law firms, to help maintain public confidence and trust in legal services.

In this consultation, the SRA sought views on:

• improving the accountants’ reports regime
• strengthening checks and balances provided by compliance officers in law firms

Our view

We support the SRA strengthening consumer protection and improving the robustness of the client money framework.

Restoring the historical safeguard that requires firms holding client money to submit annual accountants’ reports to the regulator is a sensible and necessary measure.

Annual accounts are a key indicator of issues that could impact the security of client money.

It is essential that all firms, including those currently exempt from filing accountants’ reports, file an annual declaration and that accountants can obtain routine bank confirmations to verify a list of client accounts.

These are proportionate steps that meaningfully enhance monitoring and protect clients.

However, the SRA’s success will depend on the regulator having adequate resourcing, technical capacity, and a clear plan for triage and follow-up.

To bolster confidence in the accountants’ reporting regime, the SRA could consider:

• reviewing its guidance for accountants
• working with the accountancy bodies to offer training and accreditations to accountants who want to report on law firms

We back the enhanced support package for compliance officers.

However, we do not support the use of fixed financial penalties, which may create unintended risk or delay and could unfairly penalise firms for failures outside their control.

We have serious concerns about the proposals relating to the control and restrictions on the appointment of compliance officers (COLPs/COFAs).

The SRA’s proposals are based on risk thresholds connected to firms’ turnover and the level of client money held in the previous reporting period.

The proposed thresholds to determine separation of roles based on turnover and client money held in a reporting period are set too low and will negatively impact a significant number of firms.

The SRA appears not to have based the proposal on any evidence-based or risk-based analysis or modelling.

A proper exercise should be carried out with a representative sample of firms and the impact on any proposed thresholds.

Instead of requiring separation of roles, the SRA could achieve more efficient supervision by better utilising the data it currently gathers.

The SRA should be using a risk matrix taking several risk factors into account.

A richer analysis of existing data within a risk matrix would enable the SRA to consider more relevant factors, such as:

• patterns of late filings
• sudden fluctuations in client account balances
• staffing ratios
• ownership changes
• the experience of the reporting accountant, or
• repeated exceptions on bank confirmations

Together, this would offer a far more nuanced picture of risk.

The proposed separation of compliance roles is complex, impractical and unlikely to prevent the perceived risk the SRA is trying to fix.

If implemented, there are serious concerns the proposals would likely have a negative impact on small-to-medium-sized firms in terms of higher regulatory costs.

These costs are likely to be passed onto consumers and have a knock-on impact on consumers’ access to justice.

A proper exercise needs to be carried out with a representative sample of firms before any further action is taken.

What this means for solicitors

If the proposals are put in place, the SRA will receive and need to consider thousands of accountants’ reports.

We recommend the SRA explores technology-assisted triage to manage this volume and ancillary costs effectively.

It would be helpful to know the likely cost and its impact on practising certificate fees.

The proposals around governance, unilateral control and restrictions on COLP/COFA appointments raise significant practical concerns, especially for:

• small firms
• sole practitioners
• firms with modest turnover or client account balances just above the threshold

A hard line on thresholds might produce unintended and disproportionate consequences for consumers and small-to-medium sized firms.

Firms would have little option but to contract out these roles to others or pay existing staff more to take on the extra responsibility of such roles.

Additional regulatory expenses for firms are likely to be passed onto clients. More clients unable to afford the costs of legal services would have an impact on access to justice.

Many of the proposals risk disproportionately affecting Black, Asian and minority ethnic solicitors – who predominantly work in smaller firms in less profitable areas – as well as legal aid and sole practitioners.

This would also have a negative impact on the communities they serve.

Next steps

The consultation closed on 20 February 2026.

We welcome continued engagement with the SRA to make sure the final approach achieves meaningful client protection without undermining the diversity and accessibility of the profession.

Find out more about the SRA's further consultation on client money in legal services.