Client money is once again under the spotlight, with two consultations live at the time of writing. Both focus on how law firms hold, manage and account for client funds, and how this may change in ways that are both structural and financial.
For many conveyancing and client-money intensive practices, this goes to the heart of operating model, compliance risk and client trust.
The MoJ Consultation: Interest on Lawyers’ Client Accounts Scheme (ILCA)
The Ministry of Justice (MoJ) consultation on an Interest on Lawyers’ Client Accounts Scheme (ILCA) is open until 9 March 2026.
Under the proposed model, firms would continue to hold client money in eligible accounts and retain a share of interest. However, a percentage would be diverted to a centrally administered scheme intended to support the justice system. The consultation seeks views on scope, which account types would fall within it, how interest would be apportioned, and how the scheme would interact with existing client interest rules.
It is also important to note that the proposed scheme is not limited to SRA-regulated firms. The MoJ consultation applies to legal service providers in England and Wales operating under the Legal Services Act 2007, which means CLC-regulated conveyancing practices are also likely to fall within scope. Firms regulated in Scotland are outside the jurisdiction of the proposal. For multi-disciplinary or multi-jurisdictional practices, careful analysis will be needed to understand where the scheme would apply.
Although the proposals are framed as a mechanism to support access to justice, they raise immediate practical questions for firms. Interest calculations would need to be consistent and auditable. Client terms and onboarding materials may need updating. Systems may need to change. There is also a potential tension with existing regulatory Accounts Rules requirements to account to clients for a fair sum of interest on money held on their behalf.
The Law Society of England and Wales has described the proposals as an unfair tax on legal services clients. Whether that framing ultimately prevails, the underlying issue is clear. Client account interest has moved from being a technical regulatory accounting question to a political issue and a matter of policy and public interest.
The SRA Consultation: Strengthening Safeguards Around Client Money
Running in parallel is the SRA’s consultation on client money, open until 20 February 2026.
The proposals include changes to the accountants’ reports regime, with the emphasis on earlier identification of weaknesses and clearer accountability where systems fall short.
The consultation also revisits practical areas that regularly arise in supervisory work, including the handling and prompt return of client money, the management of residual balances, and the use of advance fees. These are not new themes, but the renewed focus indicates that the regulator expects firmer control and clearer evidence of compliance in day-to-day practice.
Importantly, the SRA has indicated that the wider question of whether solicitors should continue to hold client money at all is not part of this consultation. That issue remains under consideration and may return in a future phase. For now, the direction is incremental rather than radical. The regulator’s immediate priority is strengthening consumer protection within the existing model, rather than dismantling it.
Why These Consultations Matter Together
Viewed together, these consultations point in the same direction. The MoJ is looking at the economics of client money, including whether interest should be redistributed. The SRA is looking at the governance of client money, including how funds are safeguarded, monitored and reported.
Both place client account firmly at the centre of regulatory attention. For firms, the practical implications are real. Leadership teams should be asking: how much interest income is generated from client account each year; what systems are used to calculate and apportion interest; whether client terms are clear about interest; how residual balances are identified and returned; and whether reconciliations and controls would withstand scrutiny.
For conveyancing practices, these questions are particularly relevant. Client money flows are often high volume and high value. Any change to apportionment rules or reporting obligations may require system upgrades and process redesign. There is also a reputational dimension. Client expectations around transparency are increasing, and any perception that firms benefit disproportionately from client funds is likely to attract negative attention.
Engagement and Next Steps
Consultations can be easy to ignore, but these are not theoretical exercises. Both the MoJ and the SRA are actively seeking views from the profession, and firms that operate significant client accounts are well placed to highlight what is workable in practice for their own business model.
Client account has long been treated as a settled feature of legal practice, but there appears to be real appetite for change. Whatever the final outcome, firms should assume increased transparency, closer oversight and potentially reduced flexibility around interest earned on client money. The sensible response is to review how these changes may affect your practice and ensure your firm’s voice is heard while the consultation window is still open.
Key Dates
Later in 2026 – SRA expected to publish a progress report and further consultation on longer-term client money questions.
20 February 2026 – SRA consultation closes: Client Money in Legal Services.
9 March 2026 – MoJ consultation closes: Interest on Lawyers’ Client Accounts Scheme (ILCA).