In Industry Insights

Managing client money has long been a source of risk and administrative burden for solicitors. Despite rigorous rules around client accounts, firms remain vulnerable to compliance failures, fraud, and costly errors. In this context, Third Party Managed Accounts (TPMAs) present a compelling alternative to traditional client accounts, offering a streamlined and secure way to handle client funds while reducing risk and regulatory exposure.

In this article, we’ll explore what TPMAs are, the key benefits they offer, and why the Solicitors Regulation Authority (SRA) is actively encouraging firms to consider their adoption.

What are TPMAs?

A TPMA is a payment service regulated by the Financial Conduct Authority (FCA) that allows a third-party provider to hold and manage client money on behalf of a law firm. Instead of funds passing through the firm’s own client account, they are held securely in the TPMA provider’s account. The law firm instructs the provider to make payments, ensuring the funds are used solely for the intended purpose.

Importantly, TPMAs differ from escrow accounts in that they are designed specifically to meet the needs of solicitors and their clients. The funds remain the property of the client until the solicitor authorises payment, providing additional transparency and protection.

The SRA’s support for TPMAs

The SRA has made no secret of its support for TPMAs as a viable alternative to traditional client accounts. In its guidance, the SRA highlights the benefits TPMAs offer in terms of reducing risks associated with holding client money. This includes minimising the risk of fraud, theft, or mismanagement, which remain persistent challenges for many firms.

The SRA’s enthusiasm for TPMAs can be seen as part of a broader trend towards encouraging innovation and flexibility in legal services. By outsourcing the management of client funds to an FCA-regulated provider, firms can focus more on delivering high-quality legal advice rather than worrying about compliance with the SRA Accounts Rules.

However, the SRA also sets clear expectations for firms using TPMAs. These include:

  • Ensuring the TPMA provider is authorised and regulated by the FCA.
  • Conducting due diligence on the provider to assess its reliability and compliance.
  • Informing clients about the use of a TPMA and obtaining their informed consent.
  • Maintaining oversight and monitoring of the TPMA’s operation to ensure it meets the firm’s regulatory obligations.

Benefits of TPMAs for solicitors

The potential benefits of TPMAs extend beyond compliance. For many firms, they represent a genuine opportunity to improve efficiency, reduce costs, and enhance the client experience. Key advantages include:

1. Reduced regulatory risk

Managing a traditional client account requires strict adherence to the SRA Accounts Rules, and even minor errors can have serious consequences. By outsourcing this responsibility to a TPMA provider, firms can significantly reduce their exposure to compliance risks.

We are, however, heavily skeptical of the SRA’s assumption that the use of a TPMA removes AML risk and burden on law firms.

2. Enhanced Transparency

With a TPMA, all transactions are recorded and visible to both the firm and the client. This transparency can enhance trust and reduce the potential for disputes over the use of funds.

3. Lower Administrative Burden

Traditional client accounts require ongoing reconciliation, reporting, and oversight, all of which take up valuable time and resources. TPMAs simplify this process, freeing up fee earners and support staff to focus on more productive work.

4. Increased Security

Funds held in a TPMA are protected by the provider’s FCA-authorised systems, offering an additional layer of security against fraud or cyberattacks. This can be particularly valuable for smaller firms that may not have the resources to invest in advanced security measures.

5. Competitive Advantage

In a market where clients are increasingly seeking transparency and efficiency, TPMAs can be a unique selling point. Firms that adopt this approach can demonstrate their commitment to innovation and client care.

Challenges and Considerations

While TPMAs offer clear potential benefits, it’s fair to say that they have not been embraced by the profession. Many firms experienced patchy service from their TPMA providers. Adoption should be viewed as a fundamental implementation process which requires careful planning and trsting. Firms must:

  • Conduct thorough due diligence on potential TPMA providers to ensure they meet both FCA and SRA standards.
  • Update internal policies and procedures to reflect the use of TPMAs.
  • Train staff to understand how TPMAs work and how to communicate their benefits to clients.
  • Manage the client communication process to ensure informed consent is obtained and any concerns are addressed.

Additionally, while the SRA’s guidance is supportive, firms must remember that outsourcing the management of client funds does not absolve them of their regulatory responsibilities to protect client money. Oversight and accountability remain key.

Are TPMAs the Future?

The adoption of TPMAs is still relatively new, but momentum is building. Some early adopters have reported significant benefits in terms of efficiency and risk reduction, and the FCA’s regulation of TPMA providers adds credibility and reassurance.

The SRA’s recent consultations and thematic reviews suggest that the regulator is likely to continue promoting TPMAs as part of its broader focus on improving standards and reducing risk in the profession. For firms looking to future-proof their practices, exploring TPMAs sooner rather than later could be a wise move.

Taking the First Step

If you’re considering whether TPMAs might be right for your firm, now is the time to act. Start by reviewing the SRA’s guidance on TPMAs and identifying potential providers. Engage with your compliance team to assess the practicalities and risks, and ensure your clients are fully informed about how their money will be managed.

Register for a TPMA 101 session here.

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