The Business of Client Money
Client Account Interest Reform: What the MoJ, SRA and Law Society Are Saying - and Why It Matters
The UK legal profession is currently facing one of the most talked-about regulatory and commercial debates in years: proposed changes to how interest on law firms’ client accounts is treated. What might initially appear to be a technical banking or accounting reform has become a flashpoint for discussions about law firm sustainability, regulatory policy, and access to justice.
This article explains
what the proposal is about and where it comes from,
the positions of the key players - the Ministry of Justice (MoJ), the Solicitors Regulation Authority (SRA) and the Law Society of England and Wales,
and why this matters commercially for law firms, clients and aspiring lawyers.
What Is Client Account Interest
When solicitors hold money on behalf of clients, in conveyancing deposits, probate retainers, litigation settlements, or other matters, that money is usually put into a client account. Those accounts can earn interest while funds remain there.
Under current regulator rules, firms generally need to pay clients a “fair sum” of interest but how that is done varies, and many firms retain interest above minimum amounts under agreed terms. This issue has gained prominence as rising interest rates have transformed client account interest from a minor arithmetic footnote to a more noticeable line item in legal service provider finances.
In January 2026, the Ministry of Justice launched a formal consultation on an Interest on Lawyers’ Client Accounts (ILCA) scheme, proposing that a portion of this interest be redirected to government funds rather than fully retained by law firms or returned to clients.
The Ministry of Justice’s Position
The MoJ’s consultation proposes that funds held in client accounts under legal service provider regulation in England and Wales would form the basis of a new scheme where a proportion of interest is remitted to the state. The stated aim of the scheme is to raise revenue to support the justice system, which is under financial pressure.
According to legal press reporting, one design option under discussion would see around 75% of interest on pooled client accounts and 50% of interest on individual client accounts remitted to the MoJ, with the government framing such interest as “unearned income” that could help sustain justice services without raising additional taxes.
The MoJ’s consultation explicitly notes that the scheme’s revenues would not be ring-fenced for specific access-to-justice projects at the outset, meaning they would be added to the wider MoJ budget to support core justice priorities.
The Solicitors Regulation Authority’s Position
The Solicitors Regulation Authority (SRA) is the statutory regulator of solicitors in England and Wales. Under current SRA Accounts Rules, firms must account to clients for a fair sum of interest earned on client money, but the rules do not prescribe a fixed standard and allow some flexibility in how interest is treated.
In the context of broader discussions about client money, the SRA has recently indicated that it is not planning wholesale immediate changes to client accounts and is instead focusing first on strengthening consumer protections under the existing model.
This suggests that, at least for now, the SRA’s priority remains protecting client funds and ensuring compliance with established rules, rather than supporting or opposing specific elements of the MoJ’s ILCA proposal.
The Law Society’s Position
The Law Society of England and Wales has been one of the most prominent critics of the MoJ’s client account interest proposals.
Its president, Mark Evans, has been widely quoted saying that the MoJ’s plans to divert interest “will put high street law firms at risk and increase legal fees for those that survive” if implemented as proposed. The Law Society’s statement emphasises that the MoJ’s own consultation lacks clarity about how the changes would work in practice and does not adequately account for potential impacts on smaller firms and access to justice throughout England and Wales.
The Law Society has also raised concerns that:
diverting significant interest to government funds could strain firms already dealing with high operating costs and regulatory burdens,
the proposals could unintentionally push up fees for clients if firms need to replace lost revenue, and
the potential administrative and compliance burden for firms would increase.
The Society has organised webinars and encouraged its members to engage with the consultation process, underscoring that a broad range of voices from across the profession should contribute to the response.
Potential Commercial Implications
While the consultation itself sets out policy options rather than final rules, commentators and industry sources have speculated about several possible impacts if an ILCA scheme were introduced:
1. Profitability and Business Models
Some firms, especially those in high-volume areas like conveyancing where substantial client funds are held for periods of time, may have derived meaningful revenue from client account interest. Reports suggest that for some firms, interest income has been a noticeable component of overall income.
If a portion of that revenue were redirected away from firms, some commentators suggest there could be:
reduced profitability, particularly for smaller firms with tighter margins
pressure to raise fees to offset lost interest income
potential reconsideration of business models that rely heavily on client funds
2. Regulatory and Administrative Burdens
Implementing an ILCA scheme would likely require firms to track and remit interest in a new way. This could introduce additional compliance complexity and costs associated with client account administration, potentially shaping how firms manage client money in practice.
3. Market Competition and Access to Justice
The Law Society and others have suggested that diverting client account interest could disproportionately affect high street and smaller firms, creating competitive imbalances and possibly reducing local service availability.
Why This Matters for Lawyers and Law Students
This debate illustrates how changes in legal policy can affect not just litigation or regulation but commercial realities in law firms.
For aspiring lawyers and early-career professionals, this is a clear example of commercial awareness in action; understanding that law firms operate within economic, regulatory and public-policy environments.
The client account interest proposals intersect with:
finance and business decision making
regulatory compliance obligations
broader justice system funding challenges
professional ethics and client service expectations
Conclusion
The Ministry of Justice’s consultation on an Interest on Lawyers’ Client Accounts scheme is one of the most significant potential reforms to client money practice in recent memory. The proposals aim to create a new revenue stream for the justice system but have been met with concern from professional bodies about practical impact, firm sustainability and fair outcomes for clients.
As the consultation runs and responses are gathered, this topic will continue to draw attention across the profession.
Sources:
Government consultation document,Interest on Lawyers’ Client Accounts Scheme (MoJ)
Law Society response and concerns
Solicitors Regulation Authority position reports
Legal press on proposed interest remittance percentages and commentary
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