For most solicitors, the question sounds slightly absurd.
A law firm has a client account. That is simply how legal practice works. Money comes in, money goes out and an entire regulatory and administrative system has grown up around making sure that it goes to the right place.
But it is no longer inevitable.
Law firms have been able to use third-party managed accounts, or TPMAs, for several years. The SRA first published guidance on them in December 2017. They were then expressly incorporated into Rule 11 of the SRA Accounts Rules introduced in November 2019.
In simple terms, a TPMA allows a regulated third party to receive, hold and pay out money connected with the firm’s legal work. The law firm retains oversight of the matter but does not itself receive or hold the client’s money.
On paper, the attraction is obvious. Holding client money creates risk, administration and cost. Why would a law firm willingly take all of that on if somebody else can provide the payment infrastructure?
The answer, judging by the market, is that most firms still prefer to do exactly that.
The revolution that did not happen
There has been no clamour to abandon client account.
In its evaluation of the 2019 regulatory reforms, the SRA found that only 1% of the relevant COLPs and COFAs surveyed operated a TPMA. Another 1% said that their firms wanted to use one but had not found a suitable provider.
The SRA has since acknowledged that only a few firms use TPMAs and that the market remains limited. That is significant. This is not simply a case of a useful innovation taking a little time to become mainstream. Nearly nine years after the SRA’s original guidance, operating a conventional client account remains the default for the overwhelming majority of firms.
There are some obvious explanations.
The first is familiarity. Client account is deeply embedded in legal practice. Firms have accounting systems, cashiers, reconciliations, policies and reporting arrangements designed around it. Fee earners understand, at least in broad terms, how it works. Clients recognise it. Banks, lenders, other solicitors and transactional processes expect it.
Replacing that machinery is not as simple as opening a different type of account.
A firm must understand how the TPMA will work in each area of practice, how quickly payments can be approved and released, who can authorise them, how disputes will be handled and how the system will interact with the firm’s case-management and accounting processes. It must explain the arrangement properly to clients and monitor the transactions and statements.
The firm may no longer be holding the money, but it has not stopped being responsible for looking after the client’s interests.
The second reason is that, for most firms, the existing system appears to work. The same SRA evaluation found that 71% of COLPs and COFAs whose firms handled client money regarded the Accounts Rules as only slightly burdensome or not burdensome at all. Only 5% described them as very burdensome.
That does not mean operating client account is effortless. It means the burden has become normal. Once a firm already employs the people, owns the systems and has the processes in place, replacing them with an unfamiliar external provider may feel like creating a project to solve a problem it does not believe it has.
Moving risk rather than removing it
The case for TPMAs is sometimes put too neatly.
The law firm no longer holds client money, so the Accounts Rules relating to the holding of that money do not apply in the usual way. That can remove a significant area of operational exposure. It may also reduce the opportunity for internal fraud, accidental misuse of client funds and some types of cybercrime.
But the risk does not disappear. Some of it moves.
Rule 11 still applies. The firm must satisfy itself that the provider and arrangement are appropriate. Clients must understand how their money will be held, what the arrangement costs, how payments are authorised, how they can dispute a payment request and how the protections differ from those applying to money held in a solicitor’s client account.
The firm must obtain statements, monitor transactions and ensure that the funds are used only for their designated purpose. Its AML, sanctions and source-of-funds responsibilities do not evaporate because another organisation operates the account.
There is also a new category of dependency. What happens if the provider’s platform is unavailable on completion day? How quickly can an unusual or urgent payment be approved? What happens if the provider freezes a transaction while it carries out further checks? How will safeguarded funds be dealt with if the provider fails?
Those questions may have good answers, but firms need to know what they are. “The provider is FCA-regulated” is the beginning of the due-diligence exercise, not the end.
For some practices, particularly high-volume conveyancing, control and speed are understandably difficult to surrender. The SRA’s own consultation records concerns from firms about cost, safety and transactional delay. It also records positive reports from firms using TPMAs, including on speed. The experience is therefore not uniformly negative; it is simply not yet sufficiently widespread to give the market complete confidence.
Then there is the money
There is another reason why client account has retained its grip: interest.
The SRA Accounts Rules require a firm to account to the client or third party for a fair sum of interest. Subject to that obligation and the firm’s written interest policy, firms may retain some of the interest earned on pooled client money.
For many years, when interest rates were negligible, this was not a particularly prominent part of the debate. Higher rates changed the economics.
For some firms, particularly those holding substantial balances, interest on client money has become a meaningful source of income. It can offset the cost of cashiers, banking, reconciliation, accounting systems and regulatory compliance. For a smaller number, it may contribute materially to profit.
That complicates the comparison with a TPMA.
The costs of a TPMA are usually visible. Someone charges for the facility or the transactions, and the firm must decide whether it or the client will pay. The costs of an established client account are dispersed across staffing, systems, audit, insurance and management time. Interest income may offset some or all of those costs.
It is therefore unsurprising that a firm might compare a new and visible TPMA charge with an existing system that appears to pay for itself and decide to leave matters alone.
That calculation may be about to change.
What happens if the interest goes?
Both the Government and the SRA have started to question whether law firms should continue to benefit from interest generated on client money.
The SRA’s 2024 consultation proposed preventing firms from retaining interest, subject to a de minimis allowance. It said that it was difficult to justify firms retaining interest earned on money belonging to clients and raised the concern that the arrangement could create the wrong incentives.
The SRA has not yet implemented that proposal. It has placed the wider questions about interest and the future model for holding client money into its longer-term programme of reform.
The Government has gone further by consulting on an Interest on Lawyers’ Client Accounts scheme. Under the proposal published in January 2026, 75% of interest generated on pooled client accounts would be remitted to the Government, with views invited on a possible rate as high as 90% or 100%. The proposed rate for individual client accounts is 50%.
The stated intention is to use the money to support the justice system. The consultation has closed, but at the time of writing the final shape of any scheme remains undecided.
There is an important wrinkle: the proposal expressly contemplates TPMAs being brought within the scheme. Moving client funds to a TPMA would not necessarily take the interest outside its scope.
Even so, the proposal could alter firms’ decision-making. If a firm can no longer retain much of the interest generated on its client account, one of the commercial benefits of holding the money directly is substantially reduced.
That leads to a fairly blunt question: if the income disappears, why would the firm continue to incur the risk and cost?
The answer is not quite as simple as it looks
It would be tempting to conclude that removing client-account interest will inevitably lead to mass adoption of TPMAs. That probably goes too far.
A client account does not exist solely to generate interest. For many firms it is an integral part of delivering the legal service. It may give the firm greater control over the timing and sequencing of transactions. Existing staff and systems may make it operationally efficient. Clients and counterparties understand it. In some areas of work, the wider transaction infrastructure has been built on the assumption that solicitors will hold and transfer the money.
Nor is a TPMA cost-free or risk-free. Charges must be paid by somebody. Onboarding and transaction checks may create additional stages. Responsibility becomes divided between the law firm and the provider. A firm using a TPMA still needs systems, training, supervision and an audit trail.
Removing interest income would therefore change the equation, but it would not answer it.
The better question is whether, once the financial benefit is stripped out, the remaining operational benefits of holding client money justify the residual risks.
The answer will differ between firms.
A high-volume conveyancing practice may conclude that direct control remains essential to its operating model. A new commercial boutique that expects to hold money only occasionally might reach the opposite conclusion. A litigation practice may use a TPMA for damages or settlement payments without abandoning its client account altogether. A corporate team might use one for a complex completion involving payments to numerous shareholders.
This does not have to be an all-or-nothing decision. The SRA permits a firm to use a TPMA alongside its existing client account. Selective use may prove more realistic than wholesale replacement.
A market waiting for a reason
The limited TPMA market has something of a circular problem.
Firms have not demanded the service in large numbers, so the provider market has remained relatively small. Because the market is small, firms have concerns about choice, resilience, integration, cost and whether a provider can accommodate their particular work. Those concerns suppress demand further.
Regulatory permission was never going to be enough on its own. Markets change when the existing model becomes materially less attractive or the alternative becomes materially better.
Both may now be happening.
The regulator is giving more attention to the inherent risks of solicitors holding client money. The Government is considering taking a substantial proportion of the interest. Law firms are facing increasing cyber, fraud, insurance and compliance pressures. At the same time, specialist payment providers are developing more sophisticated services for law firms and high-value transactions.
None of this means that every firm should rush to close its client account.
It does mean that firms (particularly new firms) should stop treating client account as an automatic feature of legal practice.
The question for a new firm
If you were designing a law firm today, would you choose to hold client money?
You might. But the decision should follow an assessment of the firm’s work, payment flows, transaction volumes, client expectations, staffing, systems and provider options. It should not follow from the fact that this is what law firms have always done.
A sensible assessment would consider:
- how often the firm genuinely needs to hold client money;
- the values, currencies and jurisdictions involved;
- how time-critical its transactions are;
- what it costs to operate and supervise client account properly;
- the interest the firm currently retains and how exposed that income is to regulatory or legislative change;
- whether a TPMA could be used for particular matters rather than across the whole practice; and
- what would happen operationally if either the firm’s bank or the TPMA provider became unavailable.
Existing firms should ask the same questions. The answer may still be that client account is the right model. But it should be a conscious answer, supported by current figures and an understanding of the alternatives.
JBL Compliance helps new and established law firms assess client-account, escrow and TPMA arrangements, including the regulatory implications and the practical suitability of available providers. Find out more about escrow and third-party managed accounts.
