Let's separate fact from fiction and bust some of the inaccurate myths surrounding Third-Party Managed Accounts (TPMAs).
Third-Party Managed Accounts (TPMAs) are designed to bring trust, security, and efficiency to high-value transactions by acting as neutral, regulated intermediaries.
Yet despite their increasing adoption across industries like accountancy, law, and real estate, misconceptions about TPMA persist. But are they really too slow? Unregulated? A fraud risk? These myths not only misrepresent TPMAs but can also deter businesses from harnessing the benefits of a secure, efficient payment solution.
Let's debunk the 10 most common misconceptions about TPMAs and uncover the trust behind the game-changing payment tool.
Myth #1: TPMAs are slow
We can’t afford delays with transactional payments on client matters
Speed matters. We get it. Which is why we work with our clients to reduce friction at every possible turn. As a regulated payments firm, we’re required to make payments promptly and ensure good customer outcomes.
Using our TPMA solution isn’t too different to using a banking portal provided by a bank: you key in payment details, tell us when you want the payment to be made, and we make the payment. We use the near-immediate Faster Payments system for all payments up to £1 million. For payments over that amount, we use the same day CHAPS system. We also handle international payments too, working to the same cut-off times as the banks.
Myth #2: TPMAs aren’t regulated
Client money is safer in a client account in our name
All providers offering TPMAs must be regulated by the Financial Conduct Authority as payment institutions. You can find out how a provider is regulated by checking the FCA register.
As a regulated payments institution, we are subject to strict regulations and standards designed to ensure that we are financially stable, operate with operational integrity, and treat customers fairly. We must provide regular reports to the FCA on the effectiveness of our risk management framework and related controls, and undertake independent safeguarding audits.
Myth #3: TPMA providers can’t be trusted
Providers will put profits before positive client outcomes
We can surely agree that making a profit isn’t a bad thing, per se. However, in the same way as law firms have a duty to act with integrity and in the best interests of each client, so too have FCA-regulated payment institutions.
The principles that apply to payment institutions are very similar to those which apply to SRA-regulated firms and, indeed, arguably go further by expressly requiring payment institutions to maintain adequate financial resources and adequate protection for client money.
As a regulated firm, the 'consumer duty' requires that the fees Shieldpay charge represent fair value relative to the services and outcomes being delivered.
Myth #4: TPMAs don’t prevent fraud
TPMAs aren’t any safer than client accounts at preventing fraud
There’s no solution to handling client money which can be 100% impervious to fraud. A motivated fraudster will use all manner of ways to cover their tracks, even establishing legitimate looking businesses to extract funds.
We know many law firms have robust fraud prevention measures in place. But we also know that some law firms are ineffective in this area. Unless law firms can afford to hire experienced and skilled financial crime professionals, there’s a limit on what they can feasibly do to prevent fraud.
As a dedicated payments provider with experience and expertise in fraud prevention, we act as a last line of defence in mitigating fraud risks. At Shieldpay, we’ve implemented transaction monitoring to identify the key fraud typologies directed towards law firms so we can keep the wolves at bay.
Myth #5: TPMAs introduce outsourcing risk
Outsourcing is time consuming, risky and creates an admin burden
By leveraging our expertise, technology, international capability and scale, law firms can enhance their operational efficiency, reduce compliance risks, increase profitability and focus on delivering superior legal services. While outsourcing always involves some element of risk, working with tried and tested payments partners with strong contractual agreements should ensure these risks are outweighed by the benefits.
Overall, working with Shieldpay should reduce the risk of non-compliance and associated costs, not increase it.
Myth #6: TPMAs aren’t secure
When money is in a client account with a bank, we know where it is
A TPMA is simply a bank account in the name of a TPMA provider, rather in the name of a specific law firm. The regulatory framework requires that we must hold client monies in a ‘safeguarded account’, which ring fences those funds in the event of our insolvency.
The FCA’s rulebook requires us to maintain effective business continuity measures, and our ISO27001 certification reflects our commitment to maintaining high information security standards.
As a bonus, Shieldpay's TPMA solution reconciles payments at matter level without the need for reconciliation between client ledgers and online banking portals, so you know that the amount of money we hold corresponds to the balance of each matter.
Myth #7: TPMA providers don’t pay interest
Clients shouldn’t be worse off when funds are held in a TPMA
Funds held in client accounts with banks are ‘deposits’, which can be used by banks to make loans to individuals, businesses and governments. As such, banks can pay interest on the monies they hold. Technically speaking, payment institutions can’t pay interest, because the funds that they hold aren’t deposits, but rather ‘safeguarded funds. However, we can share the ‘income’ derived from the funds that it holds instead.
As with banks, rates will vary from one provider to the next and will also move in line with changes to base rate.
Myth #8: TPMAs increase data entry
With client accounts, we only need to enter data once
A TPMA can be used as a ‘single source of truth’, avoiding the need for data to be entered twice. Our TPMA solution reconciles payments at matter level, without the need for reconciliation between client ledgers and online banking portals.
We offer an online solution and can also integrate with law firms’ own practice management systems via an API. The choice is yours!
Myth #9: TPMAs are just another payment system
We’ve already got BACs, Faster Payments and CHAPS!
A TPMA isn’t a payment system. A TPMA is a payment account which is held with a bank in the name of the TPMA provider, rather than in the name of a law firm. Payments are made via existing payment systems including Faster Payments, CHAPS or international payment systems such as SWIFT and SEPA.
Myth #10: Coming soon!
Stay tuned for myth number 10 coming very soon.
In the meantime, please add any other misconceptions you've heard or want to discuss in the comments below. If it's good, we might publish it here.
Talk to a TPMA expert today to understand if it could save you time or enhance the services you offer to your clients.
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