Conveyancing Association Response to the Ministry of Justice Consultation: Interest on Lawyers’ Client Accounts Scheme (ILCA)

Closes 09 02 26

Email: Additionalfundingconsultation@justice.gov.uk

 

Executive Summary

The Conveyancing Association (CA) does not support the approach set out in this consultation. While the CA recognises the importance of a well-funded and effective justice system, the proposal to redirect interest earned on lawyers’ client accounts will cause significant and unintended harm to conveyancing firms and consumers.

Client account interest is not a surplus or windfall. For many conveyancing practices, this income contributes directly to meeting the substantial and rising costs of operating a law firm generally, and compliant client accounts in particular, including banking charges, specialist accounting systems, external audits, internal controls, and fraud prevention measures that exist primarily to protect consumers.

The consultation web page also refers to research showing law firms do not rely on bank interest. This is fundamentally flawed as stated in “NatWest’s own benchmarking survey in 2025 told us that for 50% of law firms, interest profits represented at least 21% of their profits, and for 25% of firms it represented over 35%. For up to 10% of UK law firms, interest income represented over 50% of their profits.” (Source: https://pkf-francisclark.co.uk/insights/the-ministry-of-justices-interest-seizure-plan-a-threat-to-law-firm-stability/).

For certain sectors of the law, bank interest is irrelevant; for other sectors, such as property, it is fundamental to the running of the practice. It appears the survey sample only includes 43% of firms that carry out conveyancing.

The proposed scheme will:

• Push additional costs onto home buyers and sellers.
• Undermine existing conveyancing business models – both fixed-fee and high-volume models as well as high-street practices with strong local and national conveyancing practices.
• Make the problems already encountered by banking de-risking and access to client accounts.
• Reduce market capacity at a time of already constrained housing supply and lack of capacity for conveyancers in general.
• Create operational complexity and regulatory risk disproportionate to the likely net benefit.

Reference has been made to foreign jurisdictions – particularly pointing out that such a scheme started in France in 1957. It is disingenuous to make such a comparison as the various legal systems are so different. Indeed, French Avocats charge 7-8% of the purchase price and in the US this can be 5% of the purchase price. We understand the average purchase conveyancing fee, on the average property price. is approximately 0.5%.

CA is also concerned by the very short consultation period which limits the ability of firms to model impacts, gather evidence, and provide fully-informed responses. Meaningful consultation requires adequate time to assess consequences for businesses and consumers alike.

About the Conveyancing Association

The Conveyancing Association (CA) is the leading representative body covering specialist conveyancing law firms and licensed conveyancers across England and Wales. Our membership spans small practices, regional firms, and large national providers collectively responsible for a substantial proportion of residential property transactions each year.

CA members routinely hold significant volumes of client money in connection with residential property transactions and operate at the frontline of client account regulation. The Association’s views are informed by direct operational experience of banking requirements, regulatory compliance, and consumer protection obligations.

Consultation Responses

Question 1: Do you have any views on the proposed scope of the scheme?

CA does not support the proposed scope as currently framed. Conveyancing client accounts are integral to the safe operation of the home moving process and already subject to extensive regulatory oversight. Treating client account interest as a general revenue source fails to recognise its role in funding consumer protection infrastructure and capacity within the market place for conveyancers.

Question 2: Aside from reserved legal activities, is there other work involving client money? Should this be in or out of scope of the scheme?

We can only respond from the perspective of conveyancing transactions which do involve client money.

Question 3: Are there other account types used for holding client money that should be in scope of the scheme?

Including Third Party Managed Accounts (TPMA) risks double-counting interest that is already priced into TPMA service models and may further distort firm behaviour. Pooled accounts generate minimal interest for clients with small amounts held and the cost of calculation of the amount due would outweigh the interest accrued.

Question 4: Are there any types of individual account used for holding client money that should not be included in scope of an ILCA scheme? And why?

Yes. Individual client accounts used for high-value or long-term holdings should be excluded entirely, as clients reasonably expect to benefit from interest generated on their own funds above a de minimis amount. Presumably, banks also rely on having these long-term large deposits to meet their liquidity coverage ratio. Access to such accounts is limited and harder to achieve as banks seek to de-risk for AML compliance

Question 5: We propose that the scheme retains a higher proportion of interest generated on pooled client accounts (75–100 percent), and a lower rate of 50 percent of interest on individual client accounts. Do you have any comments on these rates?

CA does not support the proposed rates. Any compulsory diversion of client account interest will either be absorbed by firms already operating on thin margins (which is unlikely and some firms would leave the market place)  or passed directly to consumers through higher fees.

Question 6: Do you foresee any difficulties with keeping in place the existing rules on client interest, for the interest not secured by the scheme?

Yes. Introducing ILCA alongside existing regulatory duties risks confusion, complaints, and regulatory conflict unless accompanied by clear statutory primacy and regulator alignment.

Question 7: For legal work undertaken on your behalf as a client, have you received (or are you expecting to receive) interest on your funds?

N/A

Question 8: If yes to the previous question, how much interest have you received/are expecting to receive?

N/A

Question 9: Are there impacts on clients not considered?

The consultation underestimates the fact costs will be passed on to consumers, which will be detrimental to sale and purchase transactions, particularly first-time buyers and those transacting at lower price points.

Question 10: For legal service providers: how easy or difficult do you find it currently to open pooled or individual client accounts?

CA members report increasing difficulty opening and maintaining client accounts due to bank de-risking and AML.

Question 11.  For client account providers (including Third Party Managed Account providers): are there any benefits or challenges foreseen with introducing banking products with the specified criteria proposed?

N/A

Question 12: For client account providers: Would you be able to offer client accounts that could automatically transfer the appropriate amount of interest to the scheme? How would they work?

N/A

Question 13: By what process should a “comparable rate” of interest on client accounts be determined?

An average of the top five main provider interest rates, being careful not to get into a repeat of the LIBOR situation resulting in rates being agreed between banks. It should also include the ability for instant access which is a requirement of client accounts.

Question 14: We propose that interest is credited to client accounts, and collected by the scheme, periodically (such as monthly or quarterly). What should that frequency be?

Without significant regulatory change this would not work as not all interest applicable would apply to an individual client and money deducted by a third-party would conflict with the need not to mix client and third-party money. This is why all interest paid under the current rules is paid to the office account with firms required to provide a ‘sum in lieu of interest’ rather than interest itself.

Question 15: Are there other account criteria for the accounts that would be recommended to make the scheme work as intended?

No opinion.

Question 16: Do you foresee any practical difficulties with the proposed process for legal service providers?

Putting interest in in the first place and then withdrawing will result in going over drawn on client accounts which is unacceptable and contrary to professional rules of the SRA,  CILEx and CLC.

Question 17: Do you have any suggestions for changes that could improve how the model works for legal service providers?

Any scheme will drive up costs to clients and limit the availability and choice of conveyancing capacity.

Question 18. Do you have any other thoughts on the intended scheme process for legal service providers?

The CA does not support these proposals.

Question 19: At your firm, how much interest is typically generated on a single client’s funds including: a. On one client’s funds in a pooled client account; and b. On one client’s funds in an individual client account.

We represent a wide range of conveyancing firms, some of which work only in the property sector and others which combine conveyancing with a broader range of legal services. The answer to this question will inevitably depend on the amount those firms have on deposit, the interest rate they have been able to negotiate from their client account provider and the length of time the money is on deposit. As a general rule in property transactions, significant sums are held in client accounts (the deposit, the mortgage advance and balances to complete) but only for very short periods.

Some of our members carry out volume remortgage work which has involved substantial investment in IT and systems to make the work financially viable. The model for high volume remortgage work relies upon retaining the interest in client account (with the client’s consent). Most of these firms are taking work under contracts that have already set the fee levels that can be charged. These fee levels have been set on the basis that interest on client account will be retained by the firm. If this legislation is introduced it could create a perfect storm whereby firms are no longer able to carry out the work profitably but are unable to increase their charges due to the contracts they are already committed to. This has the potential to lead to redundancies and consequently serious supply issues in the remortgage market.

Question 20: What proportion of your firm’s turnover is client account interest?

We represent a wide range of conveyancing firms, some of which work only in the property sector and others which combine conveyancing with a broader range of legal services. The answer to this question will inevitably depend on the amount those firms have on deposit, the interest rate they have been able to negotiate from their client account provider and the length of time the money is on deposit. As a general rule in property transactions, significant sums are held in client accounts (the deposit, the mortgage advance and balances to complete) but only for very short periods.

Question 21. What does your firm currently do with client account interest?

The answer to this will vary for each firm but it is likely to be used to offset the cost of meeting regulatory requirements, including significant AML obligations. Most firms will offer interest to clients if substantial sums are held in client account beyond the point of completion – for example, while matrimonial disputes are resolved.

Question 22. How would the scheme, as proposed, affect your firm?

Individual firms will determine their strategy if this proposal is adopted, but all the indications we have received to date suggest client fees will be raised to offset the loss of interest and the administrative costs of complying with the scheme. The latter cannot yet be quantified, but there will inevitably be an additional cost burden on legal firms.

The consequences of the change would benefit the wealthy client at the expense of the less well-off. This is because the interest earned will be higher on higher value amounts, but if firms have to increase their fees to compensate for the loss of interest then this will need to be one fee across the board. Under the current system the wealthier clients are paying more but under any new system all clients would be paying the same.

Question 23. What indirect/administrative costs may the scheme place on your firm and how can we limit them?

As the CA does not support these proposals in principle, we cannot offer an opinion on the suggested options.

Questions: 24. Does your firm conduct legal aid work?

N/A

Question 25. If yes to the previous question: a. What proportion of your firm’s turnover is derived from legal aid work? b. Would the proposed scheme impact your provision of legal aid services, and to what extent?

N/A

Question 26: Do you envisage circumstances in which you would need the scheme administrator to assist you?

Assistance would be required where banking or regulatory conflicts arise as well as changes in interest rates and calculations.

Question 27: What are your views on the two proposed models for managing scheme interest?

The CA does not support these proposals.

Question 28: Is there a more suitable organisation than the Ministry of Justice to administer the scheme?

The CA does not support these proposals.

Question 29: Do you have any other comments on the proposed roles of the scheme administrator?

The CA does not support these proposals.

Question 30: What reporting activity do you already undertake on client accounts and interest?

Firms already undertake extensive reporting including reconciliations and annual accountant reports.

Question 31. How might we ensure that an approach to monitoring and enforcement is proportional and effective?

As the CA does not support these proposals in principle, we cannot offer an opinion.

Question 32. What do you consider to be the proposed ILCA scheme’s equalities impacts on individuals with protected characteristics (if any)?

Given most first-time buyers are young and not wealthy, these plans do run the risk of discriminating against them.

The consequences of the change would benefit the wealthy client at the expense of the less well-off. This is because the interest earned will be higher on higher value amounts, but if firms have to increase their fees to compensate for the loss of interest then this will need to be one fee across the board. Under the current system the wealthier clients are paying more but under any new system all clients would be paying the same.

33. Is there further evidence (including data, or case studies in other jurisdictions) you can share that could inform our equality analysis for the proposed scheme?

As the CA does not support these proposals in principle, we cannot offer an opinion.

34. Are there forms of mitigation in relation to equality impacts that we should consider?

As the CA does not support these proposals in principle, we cannot offer an opinion.

Conclusion

The CA urges the Ministry of Justice to reconsider the fundamental approach set out in this consultation. Client account interest is not a consequence-free source of funding nor should it become a back-door tax to raise funds for Government business. Any reform must be evidence-led, properly timed, and designed in close collaboration with those delivering conveyancing services daily, to avoid unintended harm to consumers and the housing market.