UK Ministry of Justice reportedly explores interest on client account to support free legal advice

The UK Ministry of Justice (MoJ) is reportedly exploring the potential for requiring interest earned on  pooled client accounts to fund legal services for those who cannot afford them. It has commissioned research from independent consultants into the practices of law firms in England and Wales in relation to the handling of interest on client funds held collectively. The research aims to understand how law firms currently use these funds, which tend to be too small for distribution to individual clients. The UK has previously rejected the idea of IOLTA schemes in 2011 and 2014, despite their widespread use in other jurisdictions. The new interest in this topic has been prompted by a recent increase in interest rates and renewed growth in revenue generated by client account interest.

Concurrently, discussions during a Legal Futures webinar, supported by the Solicitors Regulation Authority (SRA), have highlighted substantial benefits that could arise from prohibiting solicitors from holding client money. The Chief Executive of the SRA articulated that eliminating client accounts could drastically lower the cost of regulation, mitigate risks associated with anti-money laundering, reduce reliance on professional indemnity insurance, and address issues of trust within the profession. This proposal, part of the SRA’s consumer protection review, was informed by practices from a firm successfully using a third-party managed account (TPMA), which eliminated the need for dedicated accounts staff. The broader discussion included insights from various legal professionals and financial management experts, focusing on the operational, security, and economic implications of such regulatory reforms.

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