Consumer protection review

What are we trying to do

We have launched a review of our overall approach to protecting consumers who place their trust in regulated law firms – our consumer protection review.

Who needs to know

We want to hear from a range of consumers and their representatives, as well as solicitors and those in the legal sector, on their views as to what is the best approach to appropriately protecting consumers.

What's going on

Our public consultation on the subject of Client money in legal services - safeguarding consumers and providing redress is now open.

Over the last decade, our approach to protecting consumers has generally worked well.

Yet the legal landscape looks like it's changing. Recently we have had to step in more often to deal with failing firms. This includes a recent increase in big firm failures, including Axiom Ince, where the scale of the impact on consumers is much greater.

Shifting risks could potentially lead to significant consumer detriment, so we are doing a comprehensive review of consumer protection.

Consumers are at the heart of this review and we are looking at two main areas:

1. Managing risks: What we can do to reduce the risk that consumers suffer harm in the first place. For instance, can we improve our monitoring processes, or would there be benefits to tightening up our rules around firms holding client money?
2. The safety net: Our Compensation Fund can make good consumers losses when money has gone missing. This could be, for instance, due to a solicitor's dishonesty or the collapse of a firm. How affordable will such protections be over the long term if risks are increasing?

In considering changes to our approach, we will need to get the balance right. For instance, bolstering or even maintaining the current level of consumer protection might not be in the public interest if it is unsustainable. It could lead to large increases in prices or reduced choice for consumers.

Consultation

Client money in legal services - safeguarding consumers and providing redress

As part of the wider review, we have launched an in-depth public consultation, running until 21 February 2025.

The consultation is divided into three parts:

• Part 1: The model of solicitors holding client money. Covering issues such as how, when and for how long law firms should hold client money (if at all), alternatives to operating a client account and if rules around interest earnt on client accounts, or how long firms can hold client money after the end of a case, need changing so they better serve client's interest.
• Part 2: Protecting the client money that solicitors hold. Covering issues relating to controls, checks and balances firms are obliged to have in place to protect money held in client accounts. Including how accountants' reports are prepared and when they need submitting to the regulator and approaches to dormant firms.
• Part 3: Delivering and paying for a sustainable compensation fund. Covering issues such as how funding of the scheme is split between law firm and individual solicitor contributions and whether, in the longer term, contributions should be varied based on considerations such as size of firm, areas of law or other risk factors. The consultation also explores questions around potential payment caps and whether certain types of claim should remain eligible.

Get involved

We would like to hear from you. Please read the proposals and ideas in the consultation, and have your say.

Throughout the consultation period we will be running a series of direct engagement activities and roundtable events for consumers, the profession and wider stakeholders. If you are interested in getting involved with these activities, please contact us.

Research

As part of our review, and to help inform the proposals and ideas in the consultation, we commissioned a series of external research reports:

• Consumer insights – expectations and preferences
• Future market developments – risks to client money
• Different approaches to managing client money
• Compensation schemes in other regulatory bodies and jurisdictions
• Online polling of consumer views

Wider activity

The consultation launch is just one element of a wider programme of work emerging from the Consumer Protection Review. Other activity already completed, or underway includes:

• Publication, earlier this year, of warning notices to law firms on mergers and acquisitions and what to do when money is missing from the client account.
• Conducting a review, and implementing resulting improvements, regarding our internal processes for how we handle investigations and interventions.
• Improving how we use data about law firms and complaints to spot patterns, including by increasing investment in technology and resource in this area.