Hot on the heels of the AML Supervision Reform Consultation and recent announcements about the future of jury trials, the government has this week launched an open consultation on the much talked about issue of the interest that law firms earn when they hold their client’s money (either hold themselves or in Third Party Managed Accounts).
It is of course well known that in recent times some firms have earned very significant sums from this source (some have even stated that the sums are the difference between profit and loss) despite the fact that firms, by way of the expectations of Rule 7 of the Accounts Rules, must account for a fair sum of interest to their clients. This is an issue that the SRA had raised in a consultation in 2024 (along with wider issues relating to how solicitor client money is held) but retreated from in the latter part of last year as they “didn’t have the bandwidth” in light of the implications of the LSB’s review of the SRA’s behaviours in relation to Axiom Ince and SSB.
The consultation is, the Secretary of State says, being carried out as ‘law firms should contribute to strengthening justice’ and to ‘understand how the legal profession can help support a justice system that is fair, accessible and fit for purpose’.
The government has provisionally proposed a scheme that sits in the middle ground between other various international schemes (it appears they are not uncommon away from our shores) where in some cases small amounts in pooled accounts are targeted or, as in France, where all interest is remitted in one way or another.
It is proposed that the scheme will take 75% of the interest earned in pooled client accounts and 50% of interest earned in individual client accounts. The SRA would continue to manage and enforce the rules around what remains. A system whereby interest earned over a certain threshold system would be claimed by the scheme has been rejected.
The government are seeking views on the operational and financial implications of the proposals for law firms.
The ‘scheme administrator’ would be the Ministry of Justice. This administrator would ‘monitor client account transactions to check for compliance’ and ‘work with the regulatory authorities to safeguard against and report non-compliance.
You can make comments to the ‘Additional Funding Team’ at the Ministry of Justice by 9 February 2026. Find out more here.
In recent days, you may have seen the SDT’s thoughtful and unemotional summary of its concerns about the Treasury’s plans to move all AML/CTF Supervision to the FCA. Within that document, the Tribunal rightly asks the Treasury to address its mind to the potentially problematic two-track regulatory scheme that the proposals will bring about.
Little did the Tribunal (or indeed the rest of us) know that 2026 would start with a proposal for dual regulation of the rather more marginal regulatory issue of client interest, in circumstances where a vast majority of firms would appear to comply properly with the SRA Rules as they are.
If you have any questions arising from this alert, or if you would like to discuss the consultation in more detail, please contact our Regulatory and Professional Discipline Partners, Nick Leale and Andrew Pavlovic.
Nick Leale is recognised by Legal 500 UK 2026: ”Partner Nick Leale is a great addition to the team. He is knowledgeable, approachable, and puts all his efforts into getting results for his clients.”
Andrew Pavlovic is recognised by Legal 500 UK 2026 as a “Next Generation Partner” and Chambers and Partners UK 2026 as “Up and Coming” in the field of Professional Discipline: “Andrew Pavlovic is my go-to lawyer for any professional disciplinary matter.””Andrew is a recognised expert, particularly in legal regulation.”
CM Murray LLP has been recommended by Legal 500 UK 2026 and Chambers and Partners UK 2026 for Professional Discipline: “The firm is a leader in the field of professional discipline.” “‘The team is very good on all matters of regulatory law.”
