Improving how your firm protects client money
A law firm handles client money as part of its daily operations.
With more scrutiny from regulators, firms need to make sure their interactions with clients’ money are smooth and efficient, to improve consumer protection and maintain public trust.
Recent incidents involving the loss or misappropriation of client money in the sector prompted the Solicitors Regulation Authority (SRA) to initiate a consultation on the protection of client money.
The findings of this review, which ended in February 2025, may impact the way that firms operate.
Law firms under scrutiny
The SRA’s review investigated how law firms interact with client money to make sure regulation is efficient and reflective of market changes.
The result of this consultation could see law firms stopping holding client money entirely.
Despite the intent of this review, many industry stakeholders and even consumers themselves believe that the current process benefits both firms and clients.
Industry voices have said there are benefits to law firms handling money on behalf of their clients. These range from an improved end-to-end client experience, reduced third party costs and smoother, faster transaction times.
The SRA’s review serves as a reminder that banks can offer expertise to law firms. They provide practical tools that improve payments infrastructure.
These tools help law firms handle client money with greater protection.
Reconciliation like clockwork
Manual reconciliation, comparing two sets of records to see if they match, can be a cumbersome resource-heavy process that is prone to errors, which can represent a security risk for law firms handling client money.
Law firms can work with their bank to set up automatic reconciliation using host-to-host or application programming interface (API) technology.
Automatic reconciliation quickly matches client payments with their corresponding transactions, significantly reducing the likelihood of errors and discrepancies.
This improves security and efficiency and reduces the manual workload for employees, allowing them to focus on other tasks.
As a result, firms benefit from a smoother and simpler reconciliation process.
Playing it safe
API technology has more uses in the legal sector beyond making payments and automating the reconciliation process.
Security-focused API solutions, such as Lloyds’ Confirmation of Payee, help to reduce the risk of both fraud and the misappropriation of money.
Confirmation of Payee verifies the beneficiary’s account details by checking that the name on the account, the account number and sort-code and the type of account are all correct.
Martyn Kendrick, head of legal and professional services at Lloyds explains: “By collaborating closely with their bank and making full use of available banking technologies, transitioning to a more efficient way of managing client funds becomes straightforward. This enables law firms to deliver a highly secure and reliable experience for their clients.”
Supporting a vital function
It’s important for law firms to improve the protection of their clients’ money. They also need to trust their bank.
Firms need to make sure that the institution holding their clients’ money has proper segregation, product rules and risk management.
The safe handling of client money is vital to the functioning and reputation of law firms.
As a banking provider, Lloyds has a wide array of tools and practices to help firms in the sector run efficiently, securely and without delay.
Lloyds has extensive experience working with firms in the legal sector, applying high levels of rigour to support firms that manage client money.
Learn more about how Lloyds can support your firm’s financial operations. Visit the Lloyds legal hub
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