Most consumers think they should keep interest from client accounts

Recent research by the Legal Services Consumer Panel (LSCP) reveals that a majority of consumers (52%) believe they should receive the interest earned on money held in client accounts by their legal service providers. This finding highlights a significant divergence from current regulatory practice in England and Wales, where the Solicitors Regulation Authority (SRA) Accounts Rules require firms to account for a "fair sum" of interest, allowing for discretion and often the retention of smaller amounts by firms. The consumer sentiment comes amidst increased scrutiny from the SRA regarding firms' interest income and a Ministry of Justice consultation proposing to divert a substantial portion of this interest to fund the justice system, setting the stage for potential regulatory reform and heightened transparency expectations for legal practitioners.

The handling of client money by legal professionals in England and Wales has long been a subject of careful regulation, balancing client protection with the practicalities of legal practice. A recent study by the Legal Services Consumer Panel (LSCP) has brought a critical aspect of this practice into sharp focus: the allocation of interest earned on client accounts. The research indicates that over half of consumers (52%) believe any interest generated on their money held by solicitors should be paid directly to them. A further 22% suggested it should fund free legal advice, while only a mere 4% thought law firms should retain it.

This strong consumer expectation stands in contrast to the existing regulatory framework, which grants solicitors a degree of discretion in how interest is accounted for. The findings underscore a potential disconnect between public perception and professional practice, prompting calls for greater transparency and potentially influencing future regulatory changes. This article will delve into the current legal and regulatory landscape governing client account interest, examine the implications of the LSCP's findings, and discuss the evolving challenges and responsibilities for legal practitioners in this area.

Solicitors in England and Wales routinely hold client money in segregated client accounts, a fundamental principle enshrined in the Solicitors Regulation Authority (SRA) Accounts Rules. These rules mandate that client money must be kept separate from the firm's own funds, typically in a client account at a bank or building society in England and Wales, with the account name clearly identifying it as a "client" account. This separation is crucial for safeguarding client funds and maintaining public trust in the legal profession. The statutory basis for these rules can be traced back to Section 33 of the Solicitors Act 1974, which empowers the SRA to make provisions requiring solicitors to account for interest on client money.

Central to the current framework is SRA Accounts Rule 7.1, which stipulates that firms "account to clients or third parties for a fair sum of interest on any client money held by you on their behalf." Unlike previous, more prescriptive rules (such as the 1998 Solicitors Accounts Rules which included a specific £20 *de minimis* threshold), the current 2019 rules adopt a principles-based approach, leaving the definition of "fair" to the discretion of individual firms. Firms are generally expected to establish and publish a clear interest policy outlining when interest will be paid, how it is calculated, and any *de minimis* thresholds applied. This *de minimis* amount, often ranging from £20 to £50, is justified by the administrative burden and cost associated with calculating and paying very small sums of interest. While interest earned on designated client accounts (opened for a specific client or matter) typically goes entirely to the client, interest on pooled general client accounts may accrue to the firm, subject to the "fair sum" principle and the firm's policy.

The SRA's "fair sum" principle, while flexible, does not mean firms can retain all interest earned on client money. The SRA has clarified that firms are not necessarily expected to pay every penny of bank interest, but the amount paid must be fair, requiring a transparent policy that considers factors such as the size of client balances, the holding period, and current market rates. This discretion has become particularly pertinent with the recent rise in interest rates, which has led to a significant increase in interest income for many law firms. The SRA has expressed concern about firms potentially relying too heavily on client account interest for their financial health and has increased its scrutiny, warning that it will take action if firms fail to treat clients fairly.

Adding another layer of complexity, the Ministry of Justice (MoJ) launched a consultation on an Interest on Lawyers' Client Accounts (ILCA) scheme in January 2026. This proposal suggests diverting up to 75% of interest from pooled client accounts and 50% from individual accounts to the government to support the justice system. This plan has met strong opposition from the legal profession, which has described it as a "stealth tax" on consumers. The LSCP's research, however, did not specifically ask consumers about the MoJ's proposal, but the findings indicate a general desire for clients to benefit from the interest, either directly or through funding legal aid.

The ethical tension between client expectation and firms' administrative costs is palpable. While firms incur costs in managing client accounts, the SRA's rules prohibit using client accounts to provide banking facilities. Firms must ensure that any benefits received from banks for holding client money do not disadvantage clients. Furthermore, SRA Accounts Rule 7.2 allows for alternative interest arrangements with clients, but only if the client provides informed consent based on sufficient information. This places a high burden on firms to clearly communicate their policies and ensure clients genuinely understand the implications of any agreement to waive or alter their entitlement to interest. The LSCP has called for comprehensive research to understand whether consumers accurately comprehend what happens to their interest.

The LSCP's recent findings underscore a clear and growing expectation among consumers that they should benefit from interest earned on their money held in client accounts. This sentiment, coupled with rising interest rates and the Ministry of Justice's proposed ILCA scheme, signals a period of significant re-evaluation for how client account interest is managed and distributed within the legal sector. The current SRA Accounts Rules, while allowing firms discretion in determining a "fair sum," are now under increased scrutiny, demanding greater transparency and justification for firms' interest policies.

For practitioners, the implications are clear: it is no longer sufficient to merely comply with the letter of the SRA Accounts Rules. Firms must proactively review and update their client interest policies, ensuring they are not only compliant but also transparent, fair, and clearly communicated to clients from the outset of the retainer. Failure to do so risks not only regulatory action but also damage to client trust and reputational harm. As the legal landscape continues to evolve with potential rule changes from the SRA and the outcome of the MoJ's consultation, firms must remain vigilant, adapting their practices to meet both regulatory requirements and the increasingly vocal expectations of their clients.