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How can law firms improve the protection of client money?
A law firm handles client money as part of its daily operations. This includes supporting corporate affairs and helping with real estate purchases. But with regulators scrutinising this practice, firms should make sure that their interaction with client money is smooth, efficient and well protected. Working closely with banking providers could hold the key – here’s everything you need to know.
Read time: 5 mins Added date: 14/05/25
Recent risk incidents in the sector involving the loss or misappropriation of client money prompted the Solicitors Regulation Authority (SRA) to initiate a consultation on the protection of client money. The consequences of this review may have an unprecedented impact on the way that firms financially operate.
Under scrutiny
The SRA’s review concluded on 21 February 2025. The review was launched to investigate how law firms can interact with client money. The goal is to improve consumer protection and maintain public trust. It also aimed to make sure that regulation is both efficient and reflective of market changes. The result of this consultation could see law firms stopping holding client money entirely.
But despite the intent of this review, many industry stakeholders and even consumers themselves believe that the current process is highly beneficial. Industry voices have said that there are benefits to law firms handling money on behalf of their clients, ranging from an improved end-to-end client experience, reduced third party costs and smoother, faster transaction times.
The SRA’s review serves as a reminder that banks can offer expertise to law firms. They provide practical tools that improve payments infrastructure. These tools help law firms handle client money with greater protection.
Reconciliation like clockwork
Manual reconciliation can be a cumbersome process that needs time and resources while being prone to errors. These errors can represent a security risk for law firms handling client money. Law firms can work with their bank to set up automatic reconciliation. They can use host-to-host or API technology for this.
Automatic reconciliation quickly matches client payments with their corresponding transactions, significantly reducing the likelihood of errors and discrepancies. This greatly improves security and efficiency. It also reduces the manual workload for employees, allowing them to focus on other tasks. As a result, firms benefit from a smoother and simpler reconciliation process.
Play it safe
API technology has broader applications in the legal sector beyond making payments and automating the reconciliation process. Security-focused API solutions – such as Lloyds’ Confirmation of Payee – help to reduce the risk of both fraud and the misappropriation of money.
Confirmation of Payee verifies the beneficiary’s account details either at the beginning of, or throughout, the relationship. This heightens security and makes sure that the payment is made to the correct beneficiary.
Working closely with their banks and leveraging the banking technology at their disposal, law firms may find that migrating to an improved method of handling client money is simple. This means that they can make sure that they can offer a watertight and secure experience for their clients.
Martyn Kendrick Head of Legal and Professional ServicesA mirror image
It's important for firms in the Professional Services sector to improve the protection of their clients' money. They also need to trust their bank. Firms need to make sure that the institution holding their clients' money has proper segregation, product rules and risk management.
Lloyds has extensive experience working with firms in the Professional Services sector, applying high levels of rigour to support firms that manage client money.
The safe handling of client money is of great importance to the functioning and reputation of firms in the Professional Services sector. Lloyds has a wide array of tools and practices to help firms in the sector run efficiently, securely and without delay.
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