In recent weeks, major UK banks have experienced service outages, significantly impacting law firms' ability to meet their payment obligations. These outages can last from minutes to days, creating operational uncertainty. In extreme cases, such as those seen with HMRC, when outages become too frequent, firms may have no option but to switch banks. However, given that all banks will experience system failures at some point, there is no single solution – only practical risk management.

When a bank experiences a system outage, the consequences for law firms can be severe. Firms are responsible for safeguarding client monies, adhering to strict regulatory requirements, and ensuring that funds are accessible when needed. Unplanned downtime can disrupt daily operations, delaying client payments, payroll, and other critical financial transactions.

A banking disruption can lead to:

1. Delayed client payments – if a firm is unable to access or transfer client funds, transactions may be delayed, potentially breaching service agreements and damaging the firm’s reputation
2. Missed payroll and supplier payments – law firms rely on timely payments to staff and suppliers. Any interruption in banking services can impact cash flow and operational efficiency.
3. Regulatory non-compliance – firms handling client monies must comply with regulatory frameworks, such as the Solicitors Regulation Authority (SRA) Accounts Rules. A banking outage may prevent compliance with time-sensitive financial obligations.
4. Wasted time out of the office – possibility that an account signatory is required to leave the office to process payments at a local branch
5. Reputational harm – clients expect law firms to manage their funds securely. If a firm is unable to access or distribute funds due to a banking failure, client confidence may be eroded, potentially causing long-term reputational damage.

Consider the case of a law firm that experiences an unexpected banking outage. The firm needs to make an urgent payment to a client, but with online banking down and telephone banking unable to assist, the only option is to visit a branch to process the transaction manually. However, as part of a widespread reduction in physical banking locations, the nearest branch is c15 miles away.

A member of staff is forced to undertake an unplanned journey, spending valuable time and resources on what should have been a simple online transaction. Upon returning to the office, another urgent payment request arises, requiring the same manual intervention. This scenario highlights the vulnerability of relying on a single banking provider without an immediate alternative in place.

Given the impact of banking system failures, law firms must consider multi-banking as a key element of their business continuity strategy. Multi-banking involves maintaining accounts with more than one bank (contingent banking providers) to reduce dependence on a single provider. This approach offers several advantages:

1. Operational resilience – by diversifying banking relationships, firms can continue processing transactions through an alternative provider in the event of an outage
2. Regulatory compliance – having access to multiple banking options ensures that firms can meet regulatory obligations even if one provider experiences downtime
3. Cash flow security – multi-banking mitigates the risk of cash flow disruptions, ensuring that payroll, supplier payments, and client transactions proceed without delays
4. Risk mitigation against cyber threats – a cyberattack on a single bank could prevent access to funds. Spreading accounts across multiple banks provides an additional layer of protection.
5. Enhanced banking relationships – working with multiple banking providers may open access to additional services, such as panel membership, better lending terms, and improved financial flexibility

To successfully implement a multi-banking approach, law firms should consider the following steps:

1. Assess banking needs – identify which banking services are critical to daily operations and ensure alternative providers can meet these needs
2. Select reliable banking partners – work with financial institutions that have a strong track record in handling law firm accounts and client funds
3. Integrate banking systems – ensure that accounting and payment systems can efficiently interact with multiple banks to streamline operations
4. Establish clear contingency plans – document procedures for switching between banks in the event of an outage and ensure staff are trained to handle disruptions effectively
5. Verify clearing processes – when selecting banking providers, ensure they use separate clearing processes. Some smaller banks rely on larger institutions for transaction processing, meaning a failure at the larger bank could still impact the secondary provider.

Bank service outages are an unavoidable reality, but law firms can take proactive steps to protect their operations and clients. Multi-banking is a practical solution that enhances business continuity, mitigates financial risk, and ensures regulatory compliance.

By diversifying banking providers, firms can safeguard against disruptions and maintain seamless financial operations, reducing reliance on a single institution. This strategic approach not only prevents operational delays but also avoids the inconvenience of having to travel long distances to access banking services in times of crisis.

Keeping a link to platforms such as Downdetector, which provides real-time service outage reports, can also help law firms stay informed about potential disruptions and respond swiftly to mitigate any financial impact.

At Gemstone Legal, we help law firms establish secure contingent client banking relationships with trusted banking partners. Our expertise in this area is unmatched, with clients recognising our proven track record. If you want to safeguard your firm against banking disruptions, we’ll guide you through the process with clarity and confidence.

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^{*the views expressed are the author's and not ICAEW's}