Third-Party Managed Accounts (TPMA) for Law Firms: SRA Rule 11 Explained

What a Third-Party Managed Account Actually Is

A third-party managed account (TPMA) is a way for a law firm to handle money on a matter without ever holding that money itself. Instead of the funds passing through the firm's own client account, they sit in an account held and run by an independent provider: an FCA-authorised payment institution operating an escrow payment service. The client (and any other party to the transaction) pays into the TPMA, and the provider releases the funds only when the firm and the client jointly instruct it to do so. While the money is held, it is owned beneficially by the provider, not by the firm.

That single feature, the firm never receiving or holding the money, is what makes a TPMA so different from the traditional client-account model. In the traditional model the firm holds the client's money in a separate client account at a bank and is fully responsible for it under the SRA Accounts Rules 2019. In a TPMA, an FCA-regulated third party holds it instead, and the SRA expressly permits this. For a refresher on the conventional two-account structure, see our guide to the differences between an office account and a client account. A TPMA introduces a third structure entirely.

This guide explains what a TPMA is, how the escrow flow works in practice, the precise SRA rule that permits it, the exact conditions that rule imposes, the often-missed FCA-authorisation requirement, and the duties a firm keeps even when it uses one. It is the dedicated explainer for the product and the rule. The wider strategic question, whether to stop operating a client account altogether, is the subject of our companion page on running a law firm without a client account.

How the Money Actually Flows

A TPMA is built on a tripartite arrangement between the provider, the firm and the client. In broad terms the flow runs as follows. First, the firm, the client and the provider enter into the TPMA agreement, which sets out how the account works, how the provider's fees are paid and the client's rights. Second, the client (and any counterparty, such as a buyer or an opponent paying a settlement) pays into the TPMA, not into the firm's bank account. Third, when the matter reaches the point where money must move, the firm instructs the provider to release funds, for example to complete a property purchase, to pay a third party, or to take the firm's billed fee. Fourth, the provider executes the release and issues a statement recording the transaction.

The defining point is that the funds never pass through the firm's own bank account. The firm directs the money, but it does not hold it. That is the mechanical reason the money is not the firm's client money, and it is the reason a TPMA removes a large slice of the client-account compliance burden that would otherwise attach to those funds.

It is worth pausing on the distinction between directing money and holding it, because it is the conceptual heart of the model. In a traditional client account the firm is the custodian: the money is in an account in the firm's name, the firm is responsible for its safety, and the firm is answerable under the Accounts Rules for every movement of it. In a TPMA the firm is an instructing party, not a custodian. The provider holds the money and bears the regulatory responsibilities of a payment institution for safeguarding it, while the firm tells the provider, jointly with the client, when and to whom to release it. The firm retains its professional duty to act in the client's best interests, but it does not carry the custodial responsibility that comes with holding client money in its own account.

That difference also changes the risk profile. The most damaging client-money failures, misappropriation, money held to provide a banking facility, balances that cannot be reconciled, all depend on the firm holding the money in the first place. Take the firm out of the holding role and a whole category of risk goes with it. The firm cannot misapply money it never holds, and it cannot run a banking facility through an account it does not operate. That is the safety case for the model, and it is why the SRA has been willing to permit it.

The Rule That Permits It: SRA Rule 11

The legal anchor is Rule 11 of the SRA Accounts Rules 2019, headed Third party managed accounts. This is the correct rule. It is not Rule 4: Rule 4.2 governs the splitting of a mixed payment inside the firm's own client account, which is a different situation covered on our mixed-money receipts page. Where TPMA is concerned, the operative provision is Rule 11.

Rule 11.1 provides that you may enter into arrangements with a client to use a TPMA for receiving payments from or on behalf of, or making payments to or on behalf of, the client in respect of regulated services you provide, only if: (a) use of the account does not result in you receiving or holding the client's money; and (b) you take reasonable steps to ensure, before accepting instructions, that the client is informed of and understands the terms of the contractual arrangements relating to the use of the TPMA, in particular how any fees for use of the account will be paid and who will bear them, and the client's right to terminate the agreement and dispute payment requests made by you.

Rule 11.2 provides that where you use a TPMA you obtain regular statements from the provider of the account and ensure that these accurately reflect all transactions on the account. Those two sub-rules, taken together, are the whole of the firm's direct Accounts Rules obligation for TPMA money.

Why TPMA Money Is Not Client Money

This is the pivotal regulatory consequence. The SRA's guidance on third-party managed accounts states plainly that money held in a TPMA does not fall under the definition of client money in the Accounts Rules, because it is not held or received by you. The same guidance confirms that Rule 11 applies to a firm that uses a TPMA and that the firm should take appropriate steps to comply with the requirements set out in it.

To see why the money is not client money, it helps to recall the Rule 2.1 definition. Client money is money you hold or receive that relates to regulated services delivered to a client, or that you hold on behalf of a third party, or as a trustee or office-holder, or in respect of your fees and unpaid disbursements before you have delivered a bill. Every limb of that definition is gated on the money being held or received by you. Our page on what counts as client money sets out the four limbs in full. TPMA money never satisfies the gateway, because the firm never holds or receives it. It therefore falls outside all four limbs, and the bulk of the client-account machinery simply does not bite on it.

The Rule 11 Conditions in Detail

Even though the money is not client money, Rule 11 still imposes real obligations. Treat them as a checklist:

• Condition 1, no holding or receiving (Rule 11.1(a)). Using the account must not result in the firm receiving or holding the client's money. If the structure ever causes the funds to pass through the firm's own account, the protection falls away and the money becomes client money for that period.
• Condition 2, inform the client before instructions (Rule 11.1(b)). Before accepting instructions, take reasonable steps to ensure the client understands the contractual terms, how the provider's fees are paid and who bears them, and the client's right to terminate the agreement and to dispute payment requests the firm makes. This is a before-you-start step, and it should be recorded.
• Condition 3, obtain and check regular statements (Rule 11.2). Obtain regular statements from the provider and ensure they accurately reflect all transactions on the account. This is the ongoing control: review each statement, match it to the matter records, and query anything that does not reconcile.

None of these is onerous, but each is mandatory. The most commonly overlooked is the Rule 11.1(b) client-information duty, precisely because it has to happen before the firm takes instructions rather than as part of the routine retainer paperwork.

The FCA-Authorised-Provider Condition (the Glossary Definition)

Here is the point that catches firms out. The requirement that the provider be FCA-authorised is not written into Rule 11 itself. It lives in the SRA Glossary definition of third party managed account. Under that definition, the provider must be an authorised payment institution, a small payment institution that has chosen to implement safeguarding arrangements, or an EEA authorised payment institution (each as defined in the Payment Services Regulations), regulated by the Financial Conduct Authority, operating the account as an escrow payment service, with the monies owned beneficially by the third party.

So when Rule 11 refers to a TPMA, it imports the Glossary definition, and that definition carries the FCA requirement. The practical implication is direct: before you route a single penny, confirm that your chosen provider actually holds the relevant FCA authorisation and operates the account as an escrow payment service. Check the FCA register, keep the evidence, and document the due diligence. A provider that is not properly FCA-authorised is not a TPMA provider within the meaning of the rule, and the firm cannot rely on Rule 11.

What a TPMA Solves

Used well, a TPMA removes several familiar compliance headaches on the money it handles. It takes that money outside the Rule 3.3 banking-facility prohibition, which is one of the SRA's top enforcement areas: see our page on common SRA Accounts Rules breaches and how to fix them. It removes the residual-balance and dormant-ledger clean-up problem on TPMA matters, because the firm is not holding the balances in the first place; for the wider housekeeping discipline see our page on managing dormant and suspense client ledger balances. And for a firm that holds no client money at all, it can remove the accountant's-report requirement and the Compensation Fund contribution tied to holding client money.

That last point is significant but belongs to the strategic decision rather than to the product. We keep the report-exemption treatment light here and route the full case, including the precise distinction between the Rule 12.1 report trigger and the Rule 12.2 small-balance exemption, to our page on running a law firm without a client account.

What a TPMA Does Not Remove

A TPMA is a tool, not an exemption from professional standards. The firm still owes Code of Conduct duties to safeguard client money and assets. It must still account properly for its own fees and for any office money it does receive. And, crucially, if the firm also holds client money on other matters, the full Accounts Rules (including the five-weekly reconciliation and, where the trigger is met, the accountant's report) still apply to that money. Using a TPMA on some matters does not make the firm a no-client-money firm if it holds client money anywhere else in the accounting period.

In short, a TPMA changes how money is held on the matters it covers. It does not change the firm's overarching obligation to handle money properly and to comply with every rule that applies to any client money it does still hold.

A practical consequence follows for firms that use a TPMA on some matters but keep a client account for others. The accountant's-report position is assessed at the level of the whole firm and the whole accounting period, not matter by matter. So a firm that routes most of its money through a TPMA but holds client money on even a handful of matters has still held client money in the period and remains within the Rule 12.1 report trigger on that money. The TPMA reduces the volume of client money the firm holds, and the associated risk and effort, but it does not remove the report obligation unless the firm holds no client money at all. That is exactly why the strategic question of going fully client-account-free is a separate decision, treated on the companion page.

When a TPMA Suits a Firm (and When It Does Not)

A TPMA tends to suit new firms that want to avoid the cost and risk of setting up a client account from day one, firms that want to de-risk completions and distributions, conveyancing and litigation work where funds move between parties, and firms looking to cut their client-account compliance overhead. It is less suited to firms that hold long-term funds, such as some probate, trust or deputyship money, where the money may need to sit for extended periods and an escrow payment model fits awkwardly. It can also be less attractive where the provider's transaction fees on high volumes outweigh the compliance saving, or where clients and lenders expect a conventional client account.

That balance, matter mix, volume, fund-holding need, cost and client expectation, is a structural decision for the firm. We set it out in full, including the transition steps, on our no-client-account model page.

One nuance worth flagging is that a TPMA does not have to be an all-or-nothing choice. A firm can adopt it for the matter types where it adds the most value, typically transactional work where money moves between parties on a defined event, while keeping a client account for work where holding money is genuinely necessary. Used that way, a TPMA is a targeted tool that de-risks the riskiest money movements without forcing the firm to restructure everything. The cost of that flexibility is that the firm still operates a client account and still falls within the report trigger on the client money it holds, so it does not capture the full saving available to a firm that holds no client money at all. Deciding between targeted use and a whole-firm model is part of the strategic analysis on the companion page.

Client expectation is also a real factor. Some clients and, in property work, some lenders are accustomed to a solicitor holding money in a client account and may need reassurance about how a TPMA protects them. Because the provider is FCA-authorised and the money is held in escrow and owned beneficially by the provider while held, the protection is robust, but the firm should be ready to explain it clearly. The Rule 11.1(b) client-information step is the natural place to do this, since it already requires the firm to ensure the client understands the arrangement before instructions are accepted.

Worked Example: A Completion Through a TPMA

The following is illustrative and is not advice on any specific matter.

A conveyancing firm uses a TPMA for a residential purchase. The buyer pays the balance of the purchase price into the TPMA rather than into the firm's client account. On the day of completion, the firm instructs the provider to release the funds to the seller's representative. The provider executes the release and issues a statement showing the receipt and the payment out. The firm reviews that statement under Rule 11.2 and matches it to the matter file.

The practical result: the completion funds never touch the firm's bank account, so they are not the firm's client money, there is no client-account reconciliation to run on them, and the Rule 3.3 banking-facility risk does not arise on them. Before taking the buyer's instructions, the firm had already given the client a clear note of the TPMA terms, who pays the provider's fees, and the client's right to terminate and to dispute a payment request, recording that the client understood it, which is the Rule 11.1(b) step done properly. And before going live with the provider at all, the firm confirmed on the FCA register that the provider was an authorised payment institution operating an escrow payment service, and kept the evidence on file. Each of those steps maps to a specific part of Rule 11 or the Glossary definition.

Notifying the SRA and Getting Set Up

To put a TPMA in place properly, the firm should: select an FCA-authorised provider and document its due diligence; enter into the tripartite agreement; build the Rule 11.1(b) client-information step into how it takes instructions; set up a routine to obtain and check the Rule 11.2 statements; and notify the SRA of its TPMA use through the SRA's notification process. Keep the agreement, the due diligence and the client-information records on file so the firm can demonstrate compliance.

Because process detail can change, confirm the current SRA notification mechanism before going live. The underlying obligations, however, are stable: do not hold or receive the money, inform the client first, and check the statements.

Speak to a Specialist

Whether a TPMA is right for your firm depends on your matter mix, your volumes and your existing client-account position, and getting the Rule 11 conditions and the provider due diligence right matters. If you are evaluating a TPMA, setting up a new firm, or looking to reduce your client-account compliance burden, speak to a specialist legal-sector accountant who can review your position and help you implement it correctly.