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“Why can’t law firms in the UK provide escrow services?” is a question that arises regularly when clients or intermediaries need to safeguard funds in transactions. In many jurisdictions, it is common for law firms to secure money as an escrow provider, acting as a neutral agent who disburses funds when specified contractual terms are met. In the context of England and Wales, however, the Solicitors Regulation Authority ('SRA') imposes stringent restrictions that limit a firm's ability to offer what amounts to a simple “banking” or “escrow” function, unconnected to underlying regulated legal services.
Central to this restriction is Rule 3.3 of the SRA Accounts Rules, which states:
“You must not use a client account to provide banking facilities to clients or third parties. Payments into, and transfers or withdrawals from a client account must be in respect of the delivery by you of regulated services.”
The guidance and case law make it clear that providing a mere holding and disbursing service - essentially an escrow arrangement - without also delivering genuinely regulated legal work puts a firm at risk of breaching Rule 3.3. This article delves into the reasons behind this prohibition, explains how compliance with Rule 3.3 impacts everyday practice, and outlines why independent escrow agents and Third-Party Managed Accounts (TPMAs) are a preferred solution for many firms and their clients.
Rule 3.3 reflects the principle that solicitors’ client accounts must be reserved strictly for money connected to “the delivery by you of regulated services.” Where a law firm is merely acting as a funds custodian, absent any substantial legal or professional services, the SRA considers it tantamount to running an unlicensed bank. The relevant part of Rule 3.3 reads:
“You must not use a client account to provide banking facilities to clients or third parties.”
It underscores that, while holding client monies is at times integral to the nature of their practice - such as relating to conveyancing, probate, or litigation settlements - there must be a demonstrable nexus between those funds and the actual work being performed.
The SRA specifies that “regulated services” include:
“the legal and other professional services that you provide that are regulated by the SRA and includes, where appropriate, acting as a trustee or as the holder of a specified office or appointment.”
In plain terms, if a solicitor is engaged to carry out conveyancing on a property, to administer an estate, or to settle a dispute, it will likely be legitimate to secure client monies connected to those tasks. However, if the law firm is merely providing a service whereby it receives and disburses funds with no substantive legal work attached, that practice veers into the territory of providing “banking facilities” and violates Rule 3.3.
The guidance also highlights decisions of the Solicitors Disciplinary Tribunal (SDT), confirming that:
“It is not a proper part of a solicitor’s everyday business or practice to operate a banking facility for third parties, whether they are clients of the firm or not.”
This statement is crucial to understanding why law firms in England and Wales cannot freely offer escrow services. A pure escrow transaction without a substantial link to legal or professional advice can be viewed as an impermissible banking facility, placing a solicitor’s practice in breach of the Accounts Rules.
Solicitors in England and Wales benefit from a high level of trust, based on professional obligations such as independence, integrity, and client confidentiality. Part of that trust arises because law firms are not banks. If a client account were to become a de facto escrow or holding mechanism for money unconnected to legal work, it could undermine public confidence - firms would effectively be holding themselves out as regulated financial institutions, yet without the oversight that banks or other regulated financial institutions must undergo.
The SRA has explicit obligations, underlined by UK law, to combat money laundering, terrorist financing, and other financial crimes. The guidance states:
“Allowing a client account to be used as a banking facility carries with it the additional risk that you may assist money laundering.”
Banks are set up with sophisticated risk management systems to identify unusual transactions, freeze accounts if necessary, and report suspicious activity to the relevant authorities. Law firms, while they must also adhere to AML regulations, are not equipped to operate as banking institutions in terms of volume, systems, or regulatory scope. Thus, restricting purely financial “escrow” services mitigates the chance of client accounts being misused for criminal or unethical purposes.
The Principles stress the importance of a solicitor’s independence (Principle 3) and integrity (Principle 5). If a firm acts primarily as an escrow agent, the line between legal advisor and financial intermediary can blur. Over time, this can compromise the firm's professional distance, making it harder to maintain the independence required to serve clients ethically. By curbing the operation of non-legal banking facilities, the SRA preserves the profession’s focus on delivering genuine legal services rather than purely financial conveniences.
Many people outside the profession observe that firms regularly hold funds in property transactions, estate distributions, or settlement of lawsuits. In reality, these activities are permissible because they directly relate to a regulated legal service. For instance:
These scenarios do not constitute stand-alone escrow. Instead, the escrow-type role is integral to fulfilling a legitimate legal engagement under the regulation. By contrast, if a client approaches a firm merely to hold money unconnected to any legal advice or representation, the firm would be at risk of breaching Rule 3.3.
A primary difference is captured in the SRA’s statements:
“You must therefore only receive funds into your client account where there is a proper connection between receipt of the funds and the delivery by you of regulated services.”
The legitimate usage of a client account means receiving, holding, and transferring money specifically for the purpose of those regulated services. When that link is broken - when the firm is effectively just storing or disbursing money on behalf of someone - it drifts into providing a banking facility. This distinction underlies why a law firm cannot simply brand itself as a general escrow provider.
The SRA cites several disciplinary cases reinforcing its strict view on such breaches:
In each instance, the court and the SRA identified inappropriate or high-risk usage of law firm client accounts. The judgments underscored that firms cannot permit their accounts to become a simple conduit for client or third-party payments unrelated to actual legal services.
A frequent misuse highlighted by the SRA occurs when a client faces insolvency. If the bank withdraws facilities or the client’s accounts are frozen, that client might ask a firm to handle money for them via their client account. Rule 3.3 explicitly prohibits this scenario, because:
“If a law firm allows its client account to be used as a banking facility in an insolvency situation … the client will improperly obtain a banking service which would otherwise be unavailable to it.”
Such actions can have further legal ramifications under insolvency legislation, including potential personal liability for the firm if a court finds that they facilitated the avoidance of bankruptcy restrictions or preferential treatment of certain creditors.
Critically, a breach of Rule 3.3 does not require that money laundering or other criminal activity actually occurs. Even the potential for misuse, or an arrangement that goes beyond the permitted scope of regulated legal services, may be enough for the SRA to pursue enforcement. In other words, the mere fact that the client account was deployed like a bank account or escrow facility is sufficient for disciplinary action.
In everyday practice, firms handle a range of tasks:
Funds connected with these tasks pass through a client account, but the distinction is clear: each transaction or retention of money is intrinsically tied to the regulated service. For example, in conveyancing, the firm’s role is not only to hold purchase monies but also to draft and review contracts, conduct due diligence on the property, and handle the registration of title at HM Land Registry.
A purely escrow-based transaction, by contrast, might involve:
Under these circumstances, the legal firm would be acting primarily as a fund holder, not a legal advisor. This scenario runs afoul of Rule 3.3 because there is no meaningful “delivery of regulated services.”
Hence, a UK law firm cannot simply market itself as an “escrow provider” in the conventional sense. Doing so would violate Rule 3.3 and expose the firm to sanctions, potentially damaging its reputation and relationship with the SRA.
Given these regulatory constraints, firms often direct clients to independent escrow providers or establish Third-Party Managed Accounts (TPMAs). Such arrangements help firms avoid Rule 3.3 infringements while offering clients a secure and regulated way to hold money pending fulfilment of contractual conditions.
By outsourcing the escrow function to an independent provider authorised by the Financial Conduct Authority (FCA) or another relevant body, firms can maintain compliance with SRA Accounts Rules. The money no longer passes through the firm’s client account in a way that resembles a banking facility.
When a firm stays within the scope of its regulated legal work, it avoids the complexity of operating as a financial intermediary. The risk of a disciplinary breach diminishes significantly if the firm does not hold money for any purpose other than delivering legal services.
Most escrow or TPMA providers offer online portals or dashboards that give both the client and the firm real-time visibility of the balance. This transparent record-keeping can reassure all parties that money is disbursed only when agreed conditions are met.
Independent escrow agents often specialise in due diligence procedures, identity checks, and compliance with Anti-Money Laundering regulations. This expertise reduces the burden on a law firm, which already has to manage its own AML obligations for genuine legal services.
By separating the fund-holding and legal-advice functions, each party operates within a defined regulatory framework. The solicitor focuses on providing sound legal counsel, while the escrow provider handles the holding and transferring of money under established protocols.
To decide whether to accept client money or direct the client elsewhere, solicitors must first assess whether:
“there is a proper connection between receipt of the funds and the delivery by you of regulated services.”
If there is genuine legal work - such as drafting a contract or facilitating a property transfer - the money can typically reside in the firm’s client account without offending Rule 3.3. However, if the request is purely about holding money pending a future event, with no real legal input, an external escrow solution may be the safest route.
The SRA warns:
“The client’s convenience is not a legitimate reason … nor is not having access to a bank account in the UK.”
Even if it seems helpful for the firm to hold money temporarily, they emphasise that “convenience” does not override Rule 3.3. Clients who lack an adequate bank account, for instance, should investigate alternative methods such as a TPMA rather than relying on the solicitor’s account for everyday banking or routine payments.
The guidance specifically mentions:
“If the client does not have a bank or building society account to receive monies then you should consider arranging for money to be held in a third-party managed account or another escrow facility.”
This advice directly points clients toward a regulated financial intermediary or an FCA-authorised escrow provider. It clarifies that, under the regulatory regime, the solicitor’s role is to ensure the client’s legal needs are met, not to solve their general banking requirements.
Failure to comply with Rule 3.3 can lead to disciplinary proceedings by the SRA. Depending on the seriousness of the breach, a firm might face reprimands, fines, restrictions on practice, or referral to the Solicitors Disciplinary Tribunal (SDT). The SDT has historically taken a firm stance on such breaches, as shown in Fuglers LLP v SRA and other cases.
A solicitor who misuses a client account could also contravene multiple SRA Principles, notably:
Engaging in or facilitating questionable financial transactions can significantly erode confidence in both the individual solicitor and the wider profession.
Rule 3.3 breaches may also coincide with red flags under the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017. Even if actual money laundering cannot be proven, the mere fact that a client account is being used for unconnected transactions raises suspicion.
Law firms in England and Wales are restricted from providing escrow services in the traditional sense because doing so typically conflicts with Rule 3.3 of the SRA Accounts Rules. This fundamental provision prevents client accounts from being used as banking facilities, requiring a direct link to regulated legal work instead. The rationale lies in safeguarding the public, preserving the profession’s integrity, and reducing the risk of money laundering or improper financial transactions.
While clients and external parties sometimes find it convenient for solicitors to offer an all-in-one solution, the SRA’s guidance is unequivocal: if no meaningful legal or professional service is involved, then holding or disbursing funds on behalf of another party breaks the rules. Many of the professional, disciplinary, and reputational risks that solicitors face in this area arise from attempts to accommodate requests that fall outside the scope of permissible client account usage.
For that reason, independent escrow or TPMA providers are increasingly popular and highly recommended. By handing over purely financial holding and disbursement functions to a regulated payment provider, law firms remove the threat of contravening Rule 3.3. Clients, for their part, benefit from a dedicated mechanism designed for safe, transparent handling of funds, unencumbered by the constraints of a solicitor’s regulatory environment. This separation of roles - solicitors focusing on legal services, escrow agents focusing on fund management - helps maintain professional independence, fosters compliance with anti-money laundering measures, and upholds the highest ethical standards expected of the legal profession in England and Wales.
dospay is a trading name of DOS & Co. Ltd, a company registered in England and Wales with company number 08294966.
DOS & Co. Ltd. is registered with the Financial Conduct Authority under the Payment Services Regulations 2017 (FRN: 833374) for the provision of payment services.
All of our GBP escrow and third-party managed accounts are segregated and safeguarded at the Bank of England.
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