Mitigating risks in client money management

A roundtable discussion hosted by Shieldpay and the Council for Licensed Conveyancers (CLC) addressed growing concerns about client money management in the conveyancing industry. The conversation brought together regulators and industry experts to explore risks, with a strong emphasis on the role of technology in mitigating those risks.

One of the key issues discussed was malpractice and fraud. Recent high-profile cases, like the Axiom Ince incident where £64 million of client funds were mishandled, highlight the vulnerabilities in the current system. This has led to increased regulatory scrutiny and higher contributions to compensation funds. Cybersecurity threats also pose significant risks, particularly phishing attacks targeting clients’ email systems, which remain less secure than law firms’ systems. David Jabbari, CEO of Muve, emphasised the persistence of phishing, despite efforts to educate clients.

Another challenge discussed was the rising cost of professional indemnity insurance (PII). As the risks associated with client fund management grow, premiums have increased. Richard Orpin, interim CEO of the Legal Services Board (LSB), stressed the importance of collaboration between legal and financial regulators to manage these risks and encouraged the use of Third-Party Managed Accounts (TPMAs) as a safer alternative to traditional client accounts. Despite the clear benefits, Stephen Ward of the CLC noted that adoption of TPMAs remains limited.

The conversation also highlighted how AI is making fraud more sophisticated, especially through social engineering attacks. Sarah Charlton, CEO of Eaton-Evans & Morris, discussed how AI-enabled fraud is becoming increasingly convincing, even as law firms become more adept at detecting traditional fraud.

To address these issues, panelists called for greater cybersecurity measures. One recommendation was to adopt the Cyber Essentials scheme, which helps businesses protect against the most common cyberattacks. Sarah Charlton suggested making this scheme mandatory for conveyancing firms to ensure they meet a baseline level of security. Additionally, the need to move client communications away from unsecured emails and into more secure platforms was stressed, with Rob Gurney of Landmark Information Group highlighting the significant security gains that could be achieved.

Looking ahead, the panel agreed that the digital transformation of client money management is essential for reducing risks. Chris Williams from Novus Strategy & Consulting proposed a phased approach to this transformation: first focusing on education and understanding the current risks, then promoting the adoption of digital solutions like TPMAs, and finally reimagining the entire process with more advanced technology such as blockchain.

Ultimately, regulation will be the key driver of change. The Legal Services Board (LSB), CLC, and Solicitors Regulation Authority (SRA) are all pushing for a shift towards digital solutions that will better protect client money and improve transparency. The discussion underscored that while technology offers significant benefits, the industry needs to embrace these changes more fully to safeguard against future risks.