A landmark NSW court battle over third-party trust accounting has raised fresh questions about the legality of outsourcing trust funds, and whether the model creates new risks or could help prevent theft.
A recent NSW Supreme Court case has opened legal debate over third-party trust accounting, compliance obligations and the misuse of client funds.
In late July, Dott & Crossitt Conveyancers + Solicitors founder Jared Zak and the Australian Institute of Conveyancers NSW launched a now unpublished petition, targeting law firm Agency Settlements, which acts as legal representative for real estate agents, owned by Riverstone Partners.
The petition raised concerns that Agency Settlements’ trust accounting model amounted to a practice known as deposit flicking, where agents transfer property deposits to a third party until settlement.
While agencies typically hold deposits in regulated trust accounts, some have begun transferring them to third-party providers until settlement, raising concerns about purchaser consent and whether the funds have the same legal protections.
The petition alleged that by holding deposits, Agency Settlements breached Section 86 of the NSW Property and Stock Agents Act 2002, which required agents to hold all deposit money in an approved bank trust account.
However, Justice James Hmelnitsky said that Agency Settlements’ model was different from “deposit flicking” as it used a special clause in which both the vendor and purchaser agree to the deposit being held by the firm.
Hmelnitsky said that the firm had a strong case that its business model does not breach the law, but whether the model ultimately complies with section 86 has not yet been decided.
The ruling also found that Agency Settlements had a strong enough case to take Zak to court following his claims that the business was misleading or deceptive.
Riverstone Partners CEO Lucas McEntee said that Agency Settlements is a stakeholder to the sale contract and all parties, buyer and seller consent to them holding the deposit, and in its one year of existence had processed thousands of exchanges and settlements while reducing the chance of human error, fraud and scams.
However, the court rejected Agency Settlements’ application to stop Zak from saying its business model is unlawful, allowing him to continue advising clients on who should hold their deposits and speaking publicly on the issue.
Zak has called on Fair Trading across multiple states to investigate the matter and make a clearer stance that deposits on residential property transactions should be held in a real estate agent’s regulated trust account.
The trust account debate
While using a third party to hold trust without telling both sellers and buyers is illegal, questions have arisen as to whether regulated third party trust holders or digital payment alternatives could reduce real estate theft.
In just the past two months, in NSW, a conveyancer and a real estate agent have faced scrutiny from the watchdog for alleged theft in trust accounts.
On 14 July 2026, a Sydney-based real estate agent pleaded guilty of misusing more than half a million dollars in deposits to fund her own lifestyle, including repayments for loans on her home and purchasing an office.
The agent received a 10-month intensive corrections order, which included a requirement to complete 100 hours of community service.
On May 7, 2026, NSW Fair Trading started court proceedings against a licensed conveyancer, alleging serious offences involving the fraudulent conversion of trust money totalling more than $980,000.
The watchdog alleged that the funds were property sale proceeds held in trust for clients and were converted for personal use.
Acting NSW Fair Trading commissioner Andrew Floro said the misuse of client funds was a serious breach of trust, particularly when people are seeking to buy a home.
“Trust accounts exist to protect consumers, not to be treated as a personal line of credit. Agents who misuse client funds are breaking the law and will face enforcement action.”
Need for regulation
Contacted by REB, a spokesperson for NSW Fair Trading said the watchdog was aware of concerns surrounding third-party service providers deploying various models to hold deposit monies.
NSW Fair Trading said it was now consulting industry stakeholders to assess whether current buyer safeguards, agents’ compliance with legal obligations and existing regulatory settings are adequate.
“Licensed agents, conveyancers and solicitors who receive, hold or deal with trust monies are responsible for meeting their legal obligations, including requirements relating to the handling of client funds,” the spokesperson told REB.
“They are also responsible for providing appropriate advice to vendors and purchasers about how those funds may be held.”
Similarly, the Real Estate Institute of NSW (REINSW) said that they were aware of a surge in third-party platforms holding deposits for real estate agents pending settlement.
REINSW said that while some of the third-party trust accounts were typically pitched as reducing trust account administration, cyber fraud exposure and compliance burden, agents needed to understand the risks before agreeing to participate in any such arrangement.
The peak body stressed that using a third-party trust account does not remove an agent’s legal responsibilities for handling trust money.
According to REINSW CEO Tim McKibbin, the use of third-party trust providers is ‘too recent’ and needs further regulation.
He said that concerns that the new model may not have the purchaser’s consent and that the statutory fund may not cover losses if something goes wrong were raised.
Additionally, he said that some models have been offering agents their commission upfront as an incentive to direct deposits into the third-party account.
“I’ve asked NSW Fair Trading to give me some guidance on it to tell me if it’s appropriate. If it is, that’s great. We’re living in a society now where technology is opening doors to all kinds of solutions, providing all kinds of efficiencies.
“And we’re certainly not opposed to that. If we can do things better, if we can do things more efficiently, and provide consumers with better outcomes, then we’re all over it.
“[But] The way it’s being presented at the moment raises concerns,” McKibbin told REB.
The peak body questioned whether third-party trust accounts would actually prevent the rare cases of agents misappropriating trust funds, arguing that those intent on acting improperly may simply find another way to do so.
“I don’t think it provides any additional protection, but maybe it does. I don’t know, but I mean, I haven’t got there yet.
“But right now we’re in the dark. And when I don’t know whether something’s compliant or not, my position, and I’ve always taken this, is to be cautious. I’m saying be cautious about engaging with it until we’ve got some guidance.”
Additionally, he said that to reduce cybersecurity risks, third-party firms will need to ensure they have adequate compliance in place, if not more.
Reports have shown property scams have been on a rise as they transact higher value transactions, with the National Anti‑Scam Centre reporting that Australians lost $166.8 million to payment redirection scams last year.
Last week, a young mother nearly lost $1.2 million in a settlement scam after receiving a fake but really convincing email asking her to release the money for her property.
McKibbin said he was not against third-party trust holders as long as regulation kept pace with technology as new models emerge.
“We want to make sure that we are compliant with the legislation. And if it is a good model, if it delivers what consumers want, benefits, efficiencies, and it is compliant, then we say the legislation needs to change.”
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