Interest on Client Accounts: Potential Changes Following the MoJ’s Consultation

The Ministry of Justice has published a consultation that could lead to fundamental changes in the way interest earned on lawyers’ client accounts is used. The proposal, referred to as the Interest on Lawyers’ Client Accounts (ILCA) Scheme, aims to redirect a significant proportion of this interest to support the wider justice system.

At present, interest earned on client accounts is generally dealt with in accordance with regulatory rules, with firms either accounting to clients for interest or retaining it in certain circumstances. The proposed scheme would introduce a centralised approach, requiring a percentage of interest generated on client funds to be paid into a government-managed fund. This would apply to both pooled client accounts and individual designated accounts, as well as certain third-party managed account arrangements.

The Ministry of Justice has stated that the purpose of the scheme is to help address ongoing funding pressures within the justice system. By using interest generated on money already held within the legal sector, the government believes it can create a reliable income stream without placing additional burdens on taxpayers. Similar models have been in place overseas for many years, although the scope and application of those schemes vary.

Despite this, the proposal has prompted concern across the legal profession. Representative bodies have warned that diverting interest in this way may disproportionately affect smaller and high-street firms, particularly during periods of higher interest rates. There is also concern that firms may ultimately need to absorb the financial impact or pass additional costs on to clients, potentially affecting access to legal services.

The consultation seeks views on how the scheme would operate, how interest should be calculated and collected, and whether there should be exemptions or safeguards for certain types of firms or client accounts. Responses from law firms, regulators and other stakeholders will be critical in shaping the final outcome.

The consultation is open until February 2026, and firms are encouraged to engage with the process. Any changes introduced following the consultation could have lasting implications for client account management, compliance obligations and financial planning within legal practices. We will continue to monitor developments and provide updates as further information becomes available.