Firms in England and Wales will be instructed to hand over interest earned on client accounts, the Law Gazette reported.

The legal sector publication broke the news under the headline "Hand over client account interest, firms to be told." The instruction signals a regulator-led push targeting the practice of retaining interest that accrues when firms hold client money in segregated accounts.

What does the headline tell practitioners?

• The instruction targets firms, not individual clients.
• The subject is interest on client accounts held in trust.
• The publication is the Law Gazette, the flagship title of the Law Society of England and Wales.
• The wording "to be told" suggests new guidance rather than retrospective enforcement.

The deciding body, the operative rule, and the effective date are not stated in the headline. The full Law Gazette report is expected to identify the regulator and any rule reference.

Why client account interest is contested

Solicitors' firms hold client money in pooled accounts that earn interest from commercial banks. Under long-standing rules administered by the Solicitors Regulation Authority (SRA), firms must account to clients for that interest in defined circumstances.

Practitioners and client advocates have argued the threshold for payment is unclear. Firms sometimes retain interest that should pass to clients, in their view. The current framework has not been substantially revised for years.

What practitioners should do now

The Law Gazette's report should prompt a procedural review at every firm holding client balances:

• Confirm client care letters disclose how interest is treated.
• Audit dormant client ledgers for balances that may have accrued interest.
• Train accounts staff on the rules for passing interest to clients.
• Document the basis on which interest is calculated and applied.
• Identify balances for which the client cannot be traced and confirm treatment.

The wider debate

Client account interest sits at the intersection of legal ethics and practice economics. Firms incur expense reconciling client accounts and processing small interest payments. Clients argue the interest is property held in trust for them.

The Law Society has previously called for clearer rules on allocation. The SRA has consulted on reforms without compelling firms to pay interest automatically.

What to watch for in the full report

When the Law Gazette publishes the underlying article, practitioners should look for:

• The deciding body and any rule or guidance number.
• The operative language of the new instruction.
• The effective date and transitional arrangements.
• Whether the change alters the treatment of dormant balances for former clients.
• Any enforcement risk for non-compliance.

Until the full report is available, the headline itself is sufficient reason to review client account procedures. Firms that have not recently audited dormant balances or refreshed interest-allocation policies should act now rather than wait for the regulator's detailed instruction.