Who’s crazy? The LSB or me?

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30 September 2010

Posted by Neil Rose, Editor, Legal Futures

Scrutiny: will publication improve transparency or just help competitors spy on each other?

Is it me, or is the Legal Services Board’s (LSB) suggestion that regulators should collect and publish all agreements between introducers and lawyers slightly barmy? Can you have too much transparency?

After I first revealed it last month, the LSB yesterday confirmed that it has come down against banning referral fees but wants to improve transparency (see story). Nothing wrong there, and requirements that all agreements for referral arrangements should be in writing and that there should be crystal clear disclosure to the client, along with telling them that they can seek advice elsewhere, seem fair enough.

But publishing the actual agreements lawyers have with their introducers? Where did that one come from? Various other ideas have been floated over the years – standard agreements, model clauses and so on – but this one has appeared seemingly from nowhere.

The LSB recognises that this is a new idea, and says it wants to establish “whether there would be any issues regarding commercial confidentiality”. I’m guessing there would be – presumably introducers do different deals with different firms, for one thing. I can’t imagine the big insurers will be overly keen on this.

The idea would also introduce extra costs for regulators, lawyers and introducers. “However, we believe these new costs would be outweighed by the benefits arising from a more transparent and competitive market,” the LSB says.

The LSB’s rationale for publication is that the contractual agreements between a lawyer and introducer are at the heart of the issue of referral fees. “They are the evidence of whether or not parties have the intention of acting in the best interests of consumers,” the discussion paper says.

“Publishing this information for scrutiny by the market, consumer organisations, and consumers themselves should help to ensure that agreements are structured with consumer interests at their heart. We believe that this level of transparency will aid general economic efficiency, allow for the accurate tracking of trends by regulators and give firms every incentive to consider actively where and how to invest to acquire work in a way which minimises their own costs and so contributes to lower charges for consumers.”

The requirement, the LSB reasons further, is likely to bring pressure to bear on the terms of the agreements to ensure that they are compliant. Firms may also choose to use the information to differentiate their offerings to consumers, increasing competition in the market.

First of all, I doubt many (any?) consumers would make much use of such information. It would probably be mainly used by lawyers and introducers to check out what their competitors are up to, rather than display their altruistic concern for how the consumer interest is being served.

Second, is this transparency gone mad? Are there comparable requirements in any other sector? I must confess to not knowing much about life outside the legal world, but I am not aware of any and would be interested to hear from those who are better informed.

Third, the logistics of the exercise look pretty formidable.

Fourth, I wonder how easily it sits with outcomes-focused regulation (OFR), towards which all the regulators are moving with the LSB’s active encouragement. OFR is about setting out the principles and trusting lawyers to get regulation right. The presumption is against prescriptive rules. In exceptional cases, such as the accounts rules, detailed rules were felt to be justified, but the draft code of conduct published by the Solicitors Regulation Authority (SRA) in May did not include referrals among that list and stripped down rule 9 to four outcomes and 11 indicative behaviours.

Publication as suggested by the LSB looks a heavy-handed solution that implies a serious problem. Is the evidence uncovered by the LSB’s economic research and its consumer panel strong enough to justify it? If so, maybe the SRA should be rethinking its approach to the new rule 9. I’m not sure both of these can be right.

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8 Responses to “Who’s crazy? The LSB or me?”

  1. I agree Neil, I can’t see consumers really making use of this information – it’s about making sure there is clear disclosure for the client and making sure they understand the arrangement and can go somewhere else if they want to, not comparing deals between introducers and law firms.

    Sometimes regulators (and others) do lose sight of what transparency is actually for!

  2. Louise Restell on September 30th, 2010 at 3:52 pm
  3. Neil

    Interesting post (as ever).The practical points you make are important but transparency is not simply about transparency to and for consumers. That does not really influence behaviour. Transparency to regulators might? See here for a fuller argument…


  4. Richard Moorhead on September 30th, 2010 at 4:24 pm
  5. Richard

    I take the point about transparency not just being a matter for consumers, but while I can see the argument about regulators having sight of agreements, I wonder whether anything would really be gained by publishing them.


  6. admin on September 30th, 2010 at 4:31 pm
  7. Well reading between the lines it seems nobody really knows but a lot will depend on what information has to be disclosed and how it can be looked at. Referral agreements may reveal practices or patterns of business which give the regulator issues of concern. Firms dominated by one referrer might be a concern for instance. Referrers will also be limited in contractual terms to those they are prepared to disclose.

    Price will be v important (but also commercially sensitive). There may be ways of collecting that and aggregating it so commercial sensitivity is protected.

    I am not saying it will definitely work but it will probably work better than disclosure to the clients. Clients (on the whole) will look at the info, shrug and get on with their case. The research on financial services suggests this as does my work on employment claimants.

    Best wishes


  8. Richard Moorhead on September 30th, 2010 at 6:10 pm
  9. I call this current decade the Transparency Decade but that is in terms of how solicitors deliver their services to their clients, i.e. making sure that what they say they do they actually follow through in their service delivery.

    I think in this situation it would be completely anti-commercial (be great for competitors to see what other solicitors were paying for referrals so they could go and outbid them). Therefore, it is anti-commercial and illogical it is almost certain to happen!

  10. Nick Jervis on October 1st, 2010 at 10:04 am
  11. Just to remind everyone – this is a discussion paper. I do not think that the LSB has gone mad; and I am sure that Neil Rose is as sane now as when I met him last week.These are not final proposals.We are testing a hypothesis. As Chairman of the LSB,I want to float ideas,and I want regulation only where it is necessary and proportionate.We are a regulator committed to genuine consultation…ideas welcome!

  12. David Edmonds on October 1st, 2010 at 11:12 am
  13. Here is an idea for the LSB,
    Study the Financial Services Authorities approach and do the opposite and you might be a half decent regulator.
    The same applies for complaints – the Star Chamber approach of being judged by deliberately ignorant people with no possibility of a hearing, and no possibility of punishment for liars, cheats and compo chasers.
    Follow the ignorant and doctrinaire approach in Financial Services and the number of lawyers will be cut by 90% very soon – Tescos, the Co-op and the Halifix must be hoping the LSB don’t listen!

  14. Steve Pett on October 8th, 2010 at 2:23 pm
  15. ‘…. and give firms every incentive to consider actively where and how to invest to acquire work in a way which minimises their own costs and so contributes to lower charges for consumers.”…. demonstrates a lack of understanding of the costs model that applies to most referred work i.e. low value RTA claims. The referral fee has no impact on the cost to the consumer (usually nothing), or the costs recovered by the lawyers – they are fixed by the rules. The only impact the level of referral fee has is on the profit margin of the lawyers and their referrers. Isn’t it anti-competitive to require this to be published? How can that be in the consumer’s interests?

    Having to publish commercially sensitive agreements will drive referrers to become producers (ie set up their own ABSs) and then there will be no consumer choice.

  16. Helen Molyneux on October 8th, 2010 at 2:31 pm

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