SRA under fire for policing of referral fee ban and insurer/law firm ABSs

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By Legal Futures

23 May 2013


Twambley: SRA should put more money into enforcement

The Solicitors Regulation Authority (SRA) came under fire this week for the way it is enforcing the referral fee ban, with its director of policy and strategy unable to tell solicitors how many investigations it has started since the ban came into force seven weeks ago.

Speaking at Manchester Law Society’s annual personal injury conference, Agnieszka Scott did however emphasise that the SRA’s alternative business structure (ABS) team will be “looking carefully” to ensure that applications are not just a case of “putting two organisations together” to “bypass the ban”.

Craig Budsworth, chairman of the Motor Accident Solicitors Society (MASS), addressed delegates on the future of RTA, and said the post-Jackson regime had created “unidentified consequences” that needed highlighting to the government and regulators.

He said: “Already we can see problems within the system that go against both the spirit, and sometimes the letter, of the laws and regulations and these must be addressed. For example, the proliferation of insurer-label ABSs is technically legal, but is really about making referral fees when there is a referral fee ban for some of these ABSs.

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“MASS has been warning the government and the SRA about this for over a year. While it is entirely understandable why law firms are willing to enter into these agreements… it does raise some issues that need to be thought through thoroughly.

“Allowing one party control over the whole process will have real consequences for genuine accident victims’ access to independent legal advice. It can also be argued that it goes against the ban – and this could do yet more damage to the rep of our sector.”

Mr Budsworth called for consistent regulation across insurers, lawyers and claims management companies, and argued that a “blanket ban” on advertising enticements would reduce the risk of fraud and unnecessary claims.

Ms Scott said outcomes-focused regulation places the emphasis on firms to monitor their own arrangements and ensure they are not paying referral fees disguised as marketing services.

She told the conference that misconceptions around the ban included people believing that paying a lump sum instead of a payment per case was not in breach.

She explained: “Especially if it is for marketing, a lump sum still needs to be justified with reference to services you have received in return. Have you satisfied yourself either for the lump sum or the marketing fee you have received? Is the marketing value for money and not a referral hidden in there?

“Are you paying £10,000 for marketing services which are only worth £3,000? Is the other £7,000 a referral fee? These are the sorts of questions we would be asking you. We’ll be looking at that. Rebranding the current referral scheme as marketing is still a breach of the ban.”

Ms Scott added: “A lot of people see ABSs as a panacea to the problem of the ban and how to get around it. It is not that simple. You need to think very, very carefully about the structure, independence and what exactly is and isn’t part of the ABS.

“The ABS team will be looking very carefully at each application to make sure it is not actually trying to avoid and bypass the ban.”

However, Andrew Twambley, senior partner of Amelans Solicitors, itself an ABS, and owner of InjuryLawyers4U, responded: “It is just a legal way of avoiding the ban and the SRA said it is not interested. It is just a joke. The SRA should put more money into enforcement and answering telephone calls in the first place.”

In a following question and answer session, she was unable to answer Roger Coleman, senior partner of Colemans-ctts, who asked how many investigations the SRA had commenced seven weeks after the ban came into enforcement.

Mr Twambley added: “Inducements are bad. There are firms within 50 miles of this building offering £1,500 up front and advertising free iPads on local radio. The clients are promised a gift and never get it, while risking getting the wrong advice. Those who don’t adopt underhand tactics suffer.”

Mrs Scott responded: “In an ideal world we would look carefully at inducements and do something about it. However, the risk posed is not high enough to justify resources. It may change as we go through the reforms, maybe there will be a point where actually we need to look at it.

“With everything else we are facing, we cannot spare the resource. It is a balancing act.”

Bridget Prentice, who as justice minister in the Labour government piloted the Legal Services Act through Parliament, told the conference that she preferred the “more nuanced” recommendations of the Legal Services Board, which had recognised referral fees can be an effective marketing tool.

She said: “I’m very sad and disappointed that things have moved quite in the way they have. I know that firms are concerned they will close as a result of these changes… I’m not convinced that the way some of these changes have been handled is in the interests of the consumer.”

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