Investigating alternatives to client accounts was one of the workstreams agreed following a deregulation summit held by legal regulators last year, while the Solicitors Regulation Authority (SRA) is considering allowing firms to use third-party accounts similar to the BARCO scheme for barristers.
A report submitted to justice minister Shailesh Vara by the Legal Services Board on behalf of the regulators highlighted both the dangers and benefits, particularly for small firms, of allowing choice on whether to handle client money directly.
The report, which explored options rather than arriving at conclusions, was particularly hard-hitting on the possible dangers of alternatives to client account.
“It has been suggested to us that banks may currently give favourable borrowing rates to law firms based in part on the amount of money those firms hold in client account, on the basis that banks make other income from such firms in terms of telegraphic transfer fees for transfers in and out of client account (for example for conveyancing transactions),” it said.
“Therefore, there could be a risk of ‘loan re-pricing’ for such firms if they opt to move away from handling client money.”
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