Third-Party Managed Accounts - FAQs

Over the past decade, the risk of holding client money has increased significantly, both in terms of the need to comply with money laundering, terrorist financing and criminal finance rules, sanctions as well as a greater need to mitigate cybersecurity threats and fraud.

At the same time, regulatory action by the SRA has often centred around infractions of the Solicitors’ Accounts Rules (SAR). The most common breaches are for holding large residual balances without any plan for how to deal with them, using client accounts as a banking facility and delays in submitting accountants’ reports to the SRA. TPMAs were introduced to address these challenges.

There are five key benefits of TPMAs: 

1. Lower costs: If your firm doesn’t operate a client account, it doesn’t need to contribute to the Solicitors’ Compensation Fund or incur the cost (and strain) of obtaining an annual accountant’s report. Your Professional indemnity insurance premiums may also be reduced.
2. Reduced compliance and regulatory risk: There has been a large increase in the number and size of interventions by the SRA annually, with a large proportion of those being breaches related to client accounts as well as to the AML regulations, fraud and sanctions controls. Switching to a TPMA considerably reduces regulatory risk, including the risk of human error. The burden, time and cost implications for completing money laundering checks and verifying bank details can also be reduced. 
3. Increased efficiency: Managing a client account can be time-consuming. The operational burden of working with legacy banking providers as well as the administrative work to report on account activity and comply with the SRA regulatory requirements can deplete hours of billable time. This can greatly reduce fee-earning capacity, especially for legal teams that have a strong reliance on in-house accounting and finance teams. Working in a technology-led payments partner with an automated digital platform, like Shieldpay, streamlines all aspects of client money management.
4. Enhanced client service: With the right TPMA provider, law firms can form stronger relationships with clients. Digital solutions, such as Shieldpay, offer full visibility of scheduled payments. The transparency, certainty and convenience of this solution enables legal teams to communicate effectively with their client and build greater trust.
5. Strengthened cybersecurity: Law firms are a prime target for cybercriminals because of the high value of funds they process and sensitive data they hold. With the threat landscape becoming increasingly challenging and phishing scams more sophisticated, outsourcing the handling of client funds to a dedicated TPMA provider with safeguarded accounts can significantly mitigate this risk.

As noted above, the SAR do not apply to money held in a TPMA. However, Rule 11 of the SAR sets out the following requirements: 

Where a TPMA is used, it shouldn’t result in you receiving or holding client money (unless you operate a separate client account) 

You take ‘reasonable steps’ to ensure that your client is informed of and understands the nature of any TPMA arrangement, including any fees that they may have to pay, and the client’s right to dispute any payment requests made by you in relation to the TPMA after the client relationships has been ended 

You obtain regular statements from your TPMA provider and ensure they reflect the transactions on the account 

The SRA’s guidance on TPMA also makes it clear how you engage with the client and TPMA provider are subject to the other requirements of the SRA Code of Conduct, in particular, the requirement to ensure client money and assets are protected and the obligation to act in the best interests of each client.

Authorised payment institutions are required to either hold money in a separate ‘safeguarded account’ with a designated banking partner or take out an insurance policy that can guarantee to cover the amounts held.

Shieldpay holds monies in a separate safeguarded account. This means that if the company were to go bust, our banking partners would return 100% of the monies held to our customers. The banks cannot set-off any amounts we owe to them against the monies held by us on behalf of our customers.

If monies are held by a TPMA provider with a bank or building society that is authorised and regulated by the Prudential Regulation Authority and they go bust, then their customers may be eligible for compensation under the Financial Services Compensation Scheme (FSCS) up to the maximum limit that applies (currently £85,000 per person/company).

See our Regulatory Notice here.

Shieldpay holds funds with Tier 1 banking partners, all of which are authorised and regulated by the Prudential Regulation Authority.