Managing risk and responsibility: The role of third-party accounts in client representation

Many legal professionals will recognise the moment: sitting across from a client who's just asked where their money is being held during a complex transaction. It's a simple question that suddenly feels loaded with implications. Your client account? The opposing counsel's account? Some temporary arrangement that made sense at the time but now sounds questionable when you try to explain it? 

The reality is that traditional approaches to holding client funds, while once standard practice, are increasingly problematic in today's regulatory environment. What worked in simpler times now creates unnecessary exposure for both intermediaries and their clients. 

This is why intermediary accounts, specifically third-party managed accounts (TPMAs), have become essential infrastructure for modern legal and financial practice. Beyond compliance regulations, they create the kind of transparent, accountable framework that today's sophisticated clients expect and regulators demand. 

In this article, we’ll explain how TPMAs create a trail of accountability and why they're an essential part of modern professional practice for law firms, trustees and advisors. 

Important: The information in this guide is general in nature, not legally binding, and should not be considered financial or investment advice.    

Key takeaways: 

• Traditional client account methods create avoidable risk. Commingling, processing delays and rising regulatory pressure make firm-held client funds increasingly vulnerable – especially in high-value or cross-border matters. 

• TPMAs reduce exposure and improve operational clarity. Funds are held independently by a regulated provider, protecting against mishandling while streamlining multi-party, multi-jurisdictional transactions. 

• Built-in compliance infrastructure saves time and protects your firm. Third-party providers handle KYC, AML and audit trails, offering automated reporting and up-to-date regulatory safeguards without the internal burden. 

• Client confidence grows when transparency is built in. With clear custody, release terms and shared visibility, TPMAs create a professional, accountable framework that reinforces trust in your service. 

  
  

Rethinking risk when handling client funds 

The old way of managing client funds seemed straightforward enough: money comes in, sits in your client account, gets disbursed when the time comes. But this approach creates several layers of risk that many professionals underestimate. 

• Commingling concerns: Even with separate client accounts, holding multiple clients' funds in firm-controlled accounts creates operational complexity and potential liability. Mix-ups happen, especially in fast-moving, high-value transactions. 

• Processing bottlenecks: Manual systems and ad hoc arrangements slow everything down. When you're dealing with time-sensitive closings or cross-border transactions with multiple parties, delays can kill deals. 

• Reputational vulnerability: A single compliance issue or operational mistake can damage relationships that took years to build. In today's world, news travels fast when something goes wrong. 

• Regulatory scrutiny: Authorities are paying closer attention to how intermediaries handle client funds. The UK's SRA explicitly states that "you must not use a client account to provide banking facilities to clients or third parties", and similar restrictions are appearing in other jurisdictions. 

  
  

These risks multiply when you're dealing with fiduciary responsibilities. The legal obligation to act in a client's best interest extends beyond just giving good advice – it includes safeguarding their financial assets with the highest level of care. In complex transactions involving multiple jurisdictions or large sums, traditional client account arrangements simply don't provide adequate protection. 

Using TPMAs to reduce global risk 

Intermediary accounts through regulated third-party providers solve these problems by fundamentally changing the structure. Instead of client funds flowing through your firm's accounts, they're held by a licensed provider with specialised systems and oversight designed specifically for this purpose. 

The risk reduction is substantial: 

• Complete fund separation: Client money never touches your firm's accounts, eliminating commingling risks and potential claims about improper handling. 

• Shared regulatory responsibility: A regulated provider takes on the operational burden of compliance, fund handling, and audit preparation, reducing your firm's exposure. 

• Enhanced transparency: All parties can see exactly where funds are held, under what conditions, and how they'll be disbursed, reducing disputes and misunderstandings. 

  
  

This approach is particularly valuable in today's transaction environment. Cross-border M&A deals alone reached nearly 8,500 transactions in 2023, with many involving complex financial arrangements and multi-jurisdictional compliance requirements. North American buyers alone closed on 1,880 cross-border deals worth $449.8 billion, demonstrating the scale of funds that need secure, compliant handling. 

The advantage of built-in compliance and audit infrastructure 

One of the most compelling aspects of professional intermediary accounts is their compliance infrastructure. Third-party providers typically automate KYC, AML and CTF checks, ensuring all parties are properly verified before any funds move. This eliminates a significant administrative burden while providing stronger regulatory protection than most firms can achieve internally. 

The audit trail capabilities are equally valuable. Real-time transaction monitoring, for instance, tracks the movement of funds in real time, documenting the journey with timestamps, purpose codes and authorisation records. 

Another TPMA perk is automated reporting, where regular statements and compliance reports reduce the manual work required for internal audits and regulatory filings. Documents and transaction data are available to all stakeholders, reducing information requests and disputes. 

In an environment where regulatory penalties are escalating rapidly, these built-in safeguards provide essential protection. The compliance infrastructure that would cost a fortune to build internally is available as a service, managed by specialists who make it their business to stay current with evolving requirements. 

Building client confidence through transparent processes 

Modern clients – including individuals, corporations or institutions – expect sophisticated risk management from their advisors. They want to understand how their money is being protected, who has access to it and what controls are in place. 

Intermediary accounts deliver on these expectations by providing: 

• Clear fund custody: Clients can see that their money is held by a regulated third party, not sitting in accounts controlled by the intermediary. 

• Transparent conditions: All parties understand exactly what needs to happen for funds to be released, eliminating uncertainty and potential disputes. 

• Professional infrastructure: The use of specialised TPMA providers signals that the intermediary takes fund security seriously and operates according to best practices. 

  
  

This transparency also provides practical benefits for legal professionals: 

• Clearer procedures: Everyone knows who holds the money, under what terms, and what triggers disbursement, reducing confusion and disputes. 

• Reduced administrative burden: Less time spent on payment logistics means more time for legal strategy and client service. 

• Enhanced professional credibility: Clients and counterparties see that you're using sophisticated risk management tools, which can differentiate your firm in competitive situations. 

  
  

A note on SRA rule 11 

UK Rule 11 of the Accounts Rules specifically addresses third-party managed accounts, recognising them as a legitimate and often preferable alternative to traditional client account arrangements. Other jurisdictions are moving in similar directions, acknowledging that intermediary accounts often provide better protection for both clients and professionals. 

The practical benefits extend beyond compliance. In complex transactions, including whether cross-border acquisitions, major settlements and sophisticated trust distributions, intermediary accounts provide the operational infrastructure that makes deals possible. They solve coordination problems, reduce counterparty risk and create the kind of transparent framework that sophisticated clients demand. 

The new standard for professional practice 

Traditional client fund handling approaches that once seemed adequate now create unnecessary risks in today's regulatory and commercial environment. Intermediary accounts, delivered through professional third-party managed account providers, offer a more sophisticated, secure, and transparent alternative. 

For law firms, trustees, and professional advisors, the question isn't whether intermediary accounts are useful – it's whether you can afford to continue handling complex client funds without them. In an era of increasing regulatory scrutiny, rising client expectations and growing transaction complexity, intermediary accounts represent not just best practice, but essential infrastructure for modern professional service delivery. 

To learn more about Interpolitan TPMA accounts and how we work with a range of intermediaries, including law firms and advisors, get in touch today.