Contingent Bank Accounts – Do We Need One?

In an increasingly digital economy, uninterrupted banking access is critical to business continuity. When banking systems fail, businesses can lose the ability to process payments, transfer funds, or complete key transactions.

For law firms, the consequences can be particularly serious.

According to figures published by the UK Treasury Committee, nine of the UK’s largest banks and building societies suffered at least 158 IT failures between January 2023 and February 2025, amounting to more than 803 hours or over 33 days of unplanned outages.

Why Banking Outages Matter to Law Firms

Law firms routinely handle large sums of client money tied to strict contractual deadlines. Residential completions, lender redemptions, probate distributions, and commercial settlements all depend on banking systems functioning properly.

When systems fail, transactions stop and the reputational impact can be as damaging as the financial loss. Clients rarely distinguish between a bank outage and a law firm service failure. If completion funds do not arrive on time, the law firm is often blamed regardless of where the disruption originated.

The Cost of Banking Downtime

Any business that has experienced a banking service outage, will be familiar with the consequences but unlike a normal trading business a law firm must consider the client impact. Families can find themselves stranded on completion day, with removal vans unable to unload, belongings returned to storage depots, and unexpected hotel costs incurred while they wait for funds to clear.

The Risk of Single-Bank Dependency

Our own research suggests over 50% of law firms still rely on a single banking provider for both office and client accounts. While administratively simple, this creates a single point of operational failure. If that bank experiences disruption, the firm may lose the ability to send or receive client funds.

Firms should also recognise that some smaller providers rely on larger clearing banks for payment infrastructure. As a result, an outage affecting one major clearing bank can indirectly affect multiple institutions at the same time.

Simply opening another account may therefore not provide meaningful protection unless the secondary provider operates through genuinely separate infrastructure.

What Is a Contingent Banking Arrangement?

A contingent banking arrangement involves maintaining a secondary operational client account with an alternative banking provider that can be used if the primary bank suffers disruption.

The principle is simple: operational resilience.

Rather than relying entirely on one institution, firms create an alternative route for handling client money and critical transactions during outages or service interruptions. This is not about replacing an existing banking relationship. It is about enhancing the business continuity plan to ensure the firm continues to operate effectively when bank systems fail.

Financial Benefits Beyond Resilience

A contingent banking arrangement can also provide commercial benefits.

Some alternative banking providers now offer significantly enhanced interest rates on client balances compared with traditional high street client accounts. By holding a proportion of client funds with another provider, firms may achieve interest returns several times higher than those available through standard arrangements.

This practice, often referred to within the legal sector as “top slicing”, has long been used by firms seeking to maximise returns on retained balances while remaining compliant with regulatory obligations.

At a time when many traditional client accounts offer minimal returns, firms are increasingly reviewing whether a diversified banking structure can improve both operational resilience and financial efficiency.

Compliance and Regulatory Considerations

The SRA Accounts Rules do not prohibit firms from maintaining client accounts with multiple banking providers. In fact, contingency planning aligns closely with broader regulatory expectations around operational resilience and risk management. Most importantly, it demonstrates that the firm has taken reasonable steps to safeguard client interests when external operational failures occur.

A Practical Step Towards Resilience

The Bank of England has warned UK banks to improve their ability to recover quickly from outages. However, even the Bank of England itself has faced operational failures, proving that no system is entirely immune to IT disruptions.

"The question for law firms is no longer whether banking outages will occur, but whether the firm is prepared when they do."

For those concerned about compliance with the Solicitors Regulation Authority (SRA) Accounts Rules, there is no restriction on the number of client accounts a firm can hold or the number of banks it can work with. In fact, the Lexcel Standard requires law firms to:

1. Evaluate risks that could lead to business interruption (Lexcel 1.3a).

2. Document strategies to reduce, avoid, or transfer those risks (Lexcel 1.3b).

One of the simplest ways to safeguard against banking failures is by setting up a contingent banking arrangement.

How Gemstone Legal Can Help

At Gemstone Legal, we specialise in helping law firms set up contingent banking relationships with trusted banking partners. If you want to secure your firm’s financial stability and protect your clients from banking disruptions, we can guide you through the process.

Book a consultation today: Schedule a Call