The end of client accounts: how tokenisation and AI are forcing a new legal infrastructure

Written by John Bertrand, Director at On Demand Payment Technologies

Introduction

The Solicitors Regulation Authority (SRA) stands at a historic crossroads, as does the broader financial services sector. The International Monetary Fund has described the arrival of tokenisation as “a fundamental reconfiguration of the financial system”, and the Bank of England’s Stablecoin Consultation is monitoring the emergence of self-custody for digital wallets as an alternative to traditional financial intermediation. SRA Accounts Rules have served as the bedrock of client protection in England and Wales for over 100 years. Those rules presuppose that solicitors hold client money in segregated bank accounts, record movements through ledger entries and maintain entitlements payable on demand. That model worked when money meant sterling balances at regulated banks. The world of tokenisation makes this model progressively harder to apply.

Client money is sacrosanct

The SRA has signalled a clear direction of travel from passive to proactive compliance. Firms must demonstrate continuous risk assessment, ongoing monitoring of existing clients, documented testing of control effectiveness and near real-time verification. The transfer of primary anti-money laundering supervision from the SRA to the Financial Conduct Authority (FCA) reinforces these expectations. In October 2025, HM Treasury confirmed that the FCA will become the single professional services supervisor for AML and counter-terrorism financing, replacing the current system of 22 supervisory bodies. Enabling primary legislation is required and is not expected to pass before late 2026, with full implementation projected by 2029. Firms should nonetheless begin preparing now for a more data-intensive, outcomes-focused supervisory environment. Digital assets do not exist as ledger entries or entitlements; tokenised gold, property, security tokens, stablecoins and other DLT-based instruments represent direct ownership positions. There is no intermediary bank, no double-entry bookkeeping liability owed by the solicitor and no client account in the traditional sense. When a client or an AI agent operating under a programmed smart contract instructs a solicitor to facilitate a tokenised transaction, the solicitor is no longer a custodian of funds. The solicitor becomes a validator of terms, identity and execution conditions. This is a fundamental shift that the SRA must recognise.

The SRA’s own 2025 anti-money laundering sectoral risk assessment and thematic reviews confirm that client money handling remains one of the highest-risk areas in legal practice. Recent Solicitors Disciplinary Tribunal outcomes and SRA interventions repeatedly cite:

• breaches of Rule 3.3 (using the client account as a banking facility)

• Rule 2.5 (failure to return client money promptly)

• cash shortages caused by delays or unauthorised transfers.

These problems arise because solicitors retain direct custody and operational control over client funds in traditional accounts. That same ease of access creates the vulnerability the rules were designed to prevent. The current Accounts Rules define client money as any money held or received for a client during regulated services and assume the solicitor will maintain a segregated client account, then reconcile balances every five weeks and treat funds as a liability on the firm’s books. A solicitor cannot deposit a tokenised interest in real property into a client account; a stablecoin holding cannot be reconciled against a bank statement; and a non-fungible token cannot be returned to a client by cheque. Traditional payment rails are themselves in structural decline: domestic cheque clearing now takes up to three days via bank apps, international cheques can take up to eight weeks and many institutions have materially reduced branch cheque collection services. The incompatibility between current Accounts Rules and digital asset structures is foundational, not technical.

The Verify Validate Vest (VVV) Protocol as a proposed solution

The VVV Protocol offers a solicitor-led framework designed to address this structural misalignment. Under the proposed protocol, solicitors would perform three defined functions:

• Verify - compliance and provenance, through AML and KYC-compliant wallet addresses and continuous source of funds monitoring.

• Validate - identity, contract terms and execution conditions, including physical verification of hardware wallet ownership where required.

• Vest - value through embedded smart contract escrow that releases assets only upon successful validation.

Clients and AI entities would always retain direct ownership and control of their assets. The solicitor’s role is that of validator, not custodian. The VVV model eliminates the client money risks that drive so many disciplinary cases. On-chain analytics provide immutable, near real-time records that exceed the visibility of traditional bank statements. Smart contract escrow delivers conditional release that is more reliable than manual authorisation of client account payments. DLT-based reconciliation replaces the five-weekly bank reconciliation process with automated, distributed ledger verification. This approach aligns with the SRA’s own policy direction: it enables solicitors to demonstrate ongoing risk assessment and control effectiveness without the operational burden or liability of holding client money. It also prepares the profession for FCA supervision by embedding data-driven, auditable safeguards from the outset. The SRA’s Innovation Hub offers the natural pathway for piloting VVV in a controlled environment. The most proportionate near-term ask is that the SRA invite firms to test the protocol under the Innovation Hub’s sandbox arrangements; formal rule changes and guidance to follow once efficacy and risk management have been demonstrated. This approach lowers the immediate regulatory ask whilst generating the evidence base needed for permanent reform.

The economic and competitive imperative

The scale of the tokenisation opportunity is substantial and well-evidenced. McKinsey estimates that total tokenised asset market capitalisation could reach approximately $2 trillion by 2030 in a base case, with an optimistic scenario of up to $4 trillion. Boston Consulting Group takes a more bullish view, projecting tokenised fund AUM alone could reach $600 billion by 2030 if clear regulatory pathways are established. The UK tokenisation market is forecast to grow at a compound annual rate of 18.4 per cent from 2025 to 2030, reaching approximately $929 million in direct market revenue. Compliance and legal technology services tied to tokenisation are among the fastest-growing sub-sectors, with a projected CAGR of approximately 49 per cent through 2030. The UK legal services market, which currently generates over £40 billion annually and employs more than 300,000 professionals, is forecast to grow at 5.1 per cent per annum to 2029 with corporate services growing at 6 per cent annually. Even a modest share of tokenisation-related legal work represents a significant incremental revenue opportunity for solicitors in England and Wales.

According to the Law Society, England and Wales law accounts for approximately 40 per global acquisitions, and English law underpins an estimated 80 per cent of maritime trade. AI-related legal services represent a further emerging opportunity. The global legal AI software market is projected to grow from $3.1 billion in 2025 to $10.8 billion by 2030 at a CAGR of 28.3 per cent. The UK’s share of this market, combined with English law’s dominance in international commercial agreements, positions solicitors well to capture a material portion of AI-agent-related legal work as the sector matures. That competitive advantage is, however, under active threat. Singapore, Switzerland and Dubai have already created more permissive frameworks for digital asset transactions. If the SRA does not adapt the Accounts Rules, solicitors in England and Wales may in practice find themselves unable to act in tokenised transactions. Clients will seek legal providers in more agile jurisdictions. The SRA risks regulating a shrinking pool of traditional practice while the digital economy gravitates to more receptive legal systems, English law itself attracted international commercial work in the nineteenth and twentieth centuries by offering clarity, reliability and trust.

The regulatory path forward

The following steps are proposed for the SRA’s consideration:

• a recalibration of the Accounts Rules to recognise direct ownership of digital assets as distinct from client money, with the definition of client money amended to encompass assets held in dedicated monitored wallets where the solicitor acts solely as validator.

• new guidance endorsing VVV as a compliant framework for tokenised transactions, smart contract escrows, on-chain payments for professional fees, initially through Innovation Hub sandbox testing.

• mandatory continuing competence requirements in DLT verification, AI client governance and digital asset recovery protocols.

• succession planning guidance covering lost keys (the access point for wallets), multi-signature arrangements and court-ordered disclosure.

• ongoing collaboration with the FCA on transitional supervision and equivalent compensation mechanisms for tokenised assets. Recognising that the FCA transition will require primary legislation and is unlikely to take effect before 2028–2029.

These changes are necessary to maintain public confidence and protect clients. The SRA’s own corporate strategy commits to supporting innovation and safe testing environments. The VVV Protocol is precisely the kind of responsible, solicitor-led innovation the regulator should be positioned to champion. The SRA has an opportunity to lead the common law world into the digital age by formally recognising direct ownership, validator roles and custody-free models. The disciplinary record demonstrates that the current system repeatedly fails to prevent client money breaches. The FCA transition timetable shows that the regulator’s expectations are rising sharply. The tokenisation market projections from McKinsey, BCG and others show that the economic opportunity is real and time sensitive.

The VVV Protocol offers a practical, proportionate way forward. It preserves the SRA’s core mandate of client protection by removing custody risks. It equips solicitors to serve AI-agent clients and facilitate tokenised transactions, without exposing themselves or their clients to unnecessary liability. It aligns with the SRA’s own demand for proactive, continuous monitoring and prepares the profession for FCA oversight. The VVV Protocol has been developed as a proposed framework and has not yet been subject to independent regulatory assessment; the Innovation Hub sandbox is the appropriate vehicle for that evaluation.