The future of client money
The Accounts Rules consultation may be a stepping stone towards opening up access to BARCO for those regulated by the SRA, writes Paul Mosson
Client accounts held by lawyers have grabbed the headlines in recent years for all the wrong reasons. While most go unscathed, the stories of solicitors being struck off, sometimes because of mistakes rather than any wrongdoing, have been well documented. Despite having some protection, client accounts have emerged as a risk for firms
and their clients.
During the summer, the Solicitors Regulation Authority launched its first consultation into its Accounts Rules: 'Looking to the Future: SRA Accounts Rules Review'.
This consultation is of particular interest to the Bar Council and we will be responding. But why would the representative body for barristers have an interest in SRA-regulated lawyers and how they handle client money?
One of the proposals in this consultation is 'an alternative arrangement to holding client funds '“ TPMA'. TPMAs are third party managed accounts, one of which, of course, is the Bar Council's escrow account, BARCO.
The barristers' profession is prohibited from handling client money and has traditionally been paid by the solicitors who referred the case to them. It is one reason why there are considerably fewer complaints to the Legal Ombudsman about barristers than other members of the legal profession.
However, the introduction of direct access and the subsequent growth of the direct access Bar raised the question of how barristers whose clients could deal with them directly could be paid.
We launched BARCO in 2013 in order to solve this problem. The BARCO service allows clients to pay for legal services safely. Funds are pooled into a ring-fenced account and not released to lawyers from the BARCO account until the conditions set out in the agreement have been met. All interest on the funds is returned to the client.
BARCO was created with the Bar in mind. However, today things have moved on, which is why the SRA consultation is so important.
Beyond the Bar
Solicitors, as well as less traditional legal entities, have in recent years begun to take a closer look at BARCO, partly to reduce their risk profile, but also with one eye on showing clients their funds are safe. A stumbling block for many solicitors we have spoken to about BARCO has been confusion over the fees associated with the escrow account. There is a charge for lawyers to use the service, starting at 2 per cent of the total cost of legal fees (reducing for larger sums held), and not
2 per cent of the amount held in the account.
At the end of 2015, Evolve Family Law, which had just become a Bar Standards Board entity, adopted BARCO. However, the firm's initial understanding of BARCO was that it was an expensive service to have. Once
we had gone into the detail on the fees, it signed up.
But that wasn't the end of it. The SRA gave its first waiver to a law firm, the Legal Director, to take up BARCO.
The firm, which provides in-house lawyers to businesses on a contract basis, opted for BARCO because its clients can use the firm for their financial transactions, and it keeps the Legal Director's costs low because the regulatory burden of maintaining a dedicated client account was complicated and expensive.
Therefore, we anticipate that other firms will see the SRA's consultation as a possible stepping stone towards opening up access to BARCO for those regulated by the SRA.
Back to the Bar
Meanwhile, back at the Bar, we have seen BARCO used in a way we never intended. If ever there was any doubt about the Bar's ability to innovate, a recent example of how BARCO was used by one chambers in particular is testament to that skill.
Cotswold Barristers, which is an all-direct access set, brought a class action against the West Bromwich Mortgage Company for 240 buy-to-let mortgagees, who were challenging an increase in rates for buy-to-let mortgage customers of the company. The mortgage holders used BARCO as a fighting fund to pay for the case, which was won on appeal.
Elsewhere, BARCO is growing in strength for the Bar, with many international clients using it as an easier way to pay for the services of a barrister. BARCO has been used by clients in 17 different countries, as well as those in England and Wales.
To date, BARCO has been used in more than 600 cases and has held more than £15m in the fund.
While the SRA consultation continues, the regulator is issuing waivers for solicitors to use BARCO on a case-by-case basis.
We believe more are in the pipeline.
There may be nothing to stop other entities, which are neither regulated by the SRA nor the BSB, from using BARCO.
In the meantime, we are raising the profile of the service to legal services clients. Last year we highlighted the benefits of the service to small business owners at the Federation of Small Businesses' annual conference, and this year we will be at the Business Show to showcase to 25,000 business owners the benefits of using barristers, direct access, and legal professionals who have BARCO.
The Bar is increasingly working with international clients and the benefits of BARCO are visible for that growth in work. We hope that one day all legal professionals look to BARCO to reduce their risk profile and offer clients a reassuring alternative to client funds.
Paul Mosson is director of services at the Bar Council