When client money goes wrong: why law firms are rethinking control, oversight, and infrastructure
- Jon East
- 3 hours ago
- 5 min read
Recent headlines have brought the safeguarding of client money into sharp focus across the legal sector.
In February 2026, the Solicitors Regulation Authority (SRA) was alerted to the sudden, unexpected closure of a law firm and intervened within 48 hours. The investigation centred on suspected fraud and the potential misappropriation of funds belonging to over 17,000 accounts. With clients unable to access their money, the SRA issued emergency grants to enable people to complete property exchanges and received over 80 requests to their compensation scheme.
In the same month, the Solicitors Disciplinary Tribunal heard that the sole director of a city firm had hidden a £2.1 million deficit in the client account by giving the firm’s cashier falsified bank statements. As the only person with access to the account, he was able to move funds over several years using an alias, disguising the transfers as legitimate while in fact paying himself.
While each case is different, the pattern that connects them is familiar: when internal controls fail, the consequences are not just financial. They are reputational, operational, and systemic. For law firms, this raises a critical question: is the traditional client account model still fit for purpose in a more complex, global financial environment?
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Exposing the hidden risk in “business as usual”
For decades, client accounts have been a standard part of legal operations. They are familiar, embedded in processes, and often viewed as an administrative function rather than a strategic risk.
But regulatory scrutiny, particularly from the SRA, is intensifying. Recent enforcement action has made clear how quickly things can unravel when controls break down.
Beneath the surface, several structural vulnerabilities persist:
A concentration of control causes firms to rely on a small number of individuals with unchecked access.
Limited real-time visibility causes reconciliation gaps and delayed oversight that allow problems to compound.
Manual processes that increase exposure to human error, manipulation, or both.
Increasing regulatory pressure and ongoing updates to SRA accounts rules and guidance can cause
Scaling challenges are particularly acute for firms managing cross-border or high-volume transactions.
In isolation, these risks may appear manageable; combined, they create an environment where issues can remain undetected until they become material.
Why the SRA is sending clearer signals to law firms
The SRA has been increasingly direct in its expectations around client money.
Its guidance consistently emphasises:
Robust internal controls and reconciliation processes.
Clear segregation and safeguarding of client funds.
Consideration of alternatives to holding client money, where appropriate.
In recent years, the regulator has also signalled openness towards third-party managed accounts (TPMAs) models to reduce risk exposure within firms. The SRA's own guidance on TPMAs notes that: where a firm arranges for a client's money to be held by a third-party payment provider, the firm is not required to hold those funds in a client account.
This reflects a broader shift in regulatory thinking: from managing client money internally to questioning whether firms should be holding it at all.
The challenge for law firms today is not just compliance, it's control. When client money sits within internal systems, the margin for error increases. Independent structures like TPMA fundamentally change that dynamic, introducing separation, transparency, and governance at the infrastructure level.
Anoop Nair, COO, Interpolitan Money
What happens when legal meets payment regulation?
An additional layer of complexity is emerging as firms increasingly handle both the safeguarding and the active movement of client funds.
Holding client money is governed by the SRA Accounts Rules, but executing payments on behalf of clients can, in certain circumstances, fall within the scope of UK payment services regulation.
This can create potential grey areas:
At what point does facilitating a transaction become a regulated payment activity?
Are firms equipped to manage the operational and compliance requirements that come with this?
How do controls evolve when client instructions translate into active fund movement?
For many firms, these questions are becoming more relevant as transactions grow more complex, international, and time sensitive.
Rather than asking: "How do we manage client money internally?" — leading firms are beginning to ask: "Should we be holding client money at all?"
Structured solutions such as TPMA and escrow provide clarity. By operating within established financial infrastructure, firms can ensure funds are safeguarded appropriately, payments are executed within regulated frameworks, and operational responsibilities are clearly separated from legal ones.
Why are law firms moving away from traditional client accounts?
The environment in which law firms operate has changed significantly. Clients are more international, transactions are increasingly complex and often span multiple jurisdictions, and regulatory expectations continue to rise, while tolerance for operational risk continues to fall.
At the same time, reputational risk has become more immediate and more serious. A single failure in client money management, whether caused by misconduct, weak controls or process breakdown, can result in lasting damage far beyond the initial financial loss.
In response, many firms are moving away from traditional client accounts in favour of regulated TPMA and escrow solutions. These models are designed to reduce risk, strengthen compliance and support modern transactional demands.
Key benefits include:
Independent safeguarding
Client funds are held outside of the law firm's own accounts, reducing exposure to internal errors or misconduct.
Clear governance and controls
Pre-defined payment conditions, dual authorisation and structured release mechanisms ensure funds only move when agreed conditions are met.
Real-time transparency
Reporting tools provide clarity for all parties, including law firms, clients and counterparties.
Reduced regulatory burden
Firms can simplify compliance and limit SRA exposure by removing the need to operate traditional client accounts.
Built for complex transactions
From M&A deals to property completions and cross-border structures, TPMA and escrow solutions are designed for modern transactional complexity, including property exchange scenarios where traditional models have, at times, exposed clients to unnecessary risk.
Taken together, these advantages reduce exposure and improve control, while also creating the foundation for a more scalable and resilient approach to managing client money.
The shift from risk exposure to infrastructure advantage
Beyond risk reduction, a more significant opportunity is emerging. For forward-looking firms, TPMA and escrow solutions are becoming core financial infrastructure, enabling a more controlled, transparent and scalable approach to supporting legal transactions.
Adopting these solutions is not simply a defensive measure. It is an opportunity to operate with greater clarity and capability.
Firms making this transition are:
Strengthening client trust through increased transparency.
Improving operational efficiency and auditability.
Building the capacity to manage complex, high-value and cross-border transactions.
Positioning themselves to meet the expectations of a more global and sophisticated client base.
In this context, the handling of client money becomes a strategic enabler of growth, rather than an administrative obligation.
How Interpolitan Money supports law firms
As scrutiny increases and transactions grow more complex, the infrastructure supporting client money must keep pace because managing people’s capital isn’t just another operational function – it’s a strategic and moral responsibility.
At Interpolitan Money, we work with law firms, fiduciaries, and intermediaries to provide secure, structured environments for holding and managing client funds.
Through our SRA-compliant TPMA and FCA-regulated escrow solutions, we support:
Segregated multi-currency accounts
Structured payment workflows and dual-authorisation controls.
Cross-border transaction support across 160+ countries and 50+ currencies.
Independent safeguarding frameworks aligned with SRA accounts rules and UK payment services regulation.
Moving away from traditional client account models towards a more robust, auditable, and scalable approach to client money management is no longer a future consideration - it’s already happening, and the focus is now on how quickly firms can adapt.
Speak to our dedicated TPMA and escrow team today to discover how Interpolitan Money can help your firm reduce operational risk and provide peace of mind with every payment.
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