Leading law societies warn against SRA’s overreaching reforms

The five largest local law societies in the UK - Birmingham, Bristol, Leeds, Liverpool, and Manchester - known as “the Joint V” - have joined forces to challenge the Solicitors Regulation Authority’s (SRA) proposed reforms to client money management, regulatory oversight, and the Compensation Fund.

Representing over 15,000 legal professionals nationwide, the Joint V argue in their high-level response submitted to the SRA this week that the SRA’s proposals are disproportionate, risk undermining public confidence in the profession, and fail to deliver meaningful consumer protection improvements. Each Society will also deliver its own individual detailed response to the SRA.

Unnecessary disruption to client money handling

The SRA’s long-term ambition to prevent solicitors from holding client money is both disproportionate and ill-conceived – “a sledgehammer to crack a nut”. The legal profession overwhelmingly acts with integrity, and the existing safeguards are robust. A move to Third-Party Managed Accounts (TPMAs) would not improve consumer protection and would introduce new risks, including cybersecurity threats and reduced client choice. There is no clear evidence that TPMAs offer any greater security than the current system.

Flawed approach to interest on client accounts

The SRA’s claim that firms are improperly retaining interest on client funds is fundamentally mistaken. The legal profession has long absorbed the costs of managing client accounts, and there is no evidence of improper conduct. Interest retention was never raised as a concern when rates were low, highlighting the inconsistency in the SRA’s approach.

Unrealistic residual balance proposals

A rigid 12-week deadline for returning residual balances is impractical, particularly in complex matters involving international clients, deceased estates, or property transactions. The current “prompt” obligation already ensures that balances are cleared appropriately. Arbitrary deadlines could lead to unnecessary breaches and administrative burdens without achieving meaningful reform.

The SRA must improve its own regulatory processes

The focus should be on strengthening the SRA’s own internal oversight rather than imposing further regulatory burdens on firms. The Joint V supports:

• Enhancing pre-authorisation checks to prevent misconduct before it arises.
• Better training for SRA staff and improvements in regulatory enforcement.
• Reintroducing accountants’ reports to strengthen compliance monitoring.

Compensation Fund lacks transparency

The Compensation Fund is being used not just to compensate clients but also to cover SRA intervention costs—without sufficient oversight or transparency. A significant portion of the Fund’s budget is allocated to interventions, yet the profession receives little accountability on how these funds are used. The SRA must provide greater clarity on the Fund’s future and ensure solicitors are not unfairly burdened with rising costs.

Call for proportionate and evidence-based regulation

The Joint V strongly urges the SRA to rethink its approach. “The proposed reforms risk undermining trust in the profession without delivering tangible benefits to consumers. The SRA should focus on improving its own regulatory effectiveness before imposing new burdens on firms,” said Richard Port MBE, President of Birmingham Law Society.

The Joint V stands ready to engage with the SRA to develop fair, practical, and evidence based solutions that protect consumers while maintaining the integrity and efficiency of legal services (14/02/2025)

Read Joint V Response to SRA Consumer Protection Consultation here>> Joint V Response to Consumer Protection Review Final 13.02.25