SRA set to offer informed guidance but not safe harbour over referral fee ban

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22 January 2013

SRA: 49 responses to consultation

The board of the Solicitors Regulation Authority (SRA) will tomorrow be asked to confirm an outcomes-focused approach to implementing the referral fee ban, along with a commitment to develop guidance “as our knowledge of different schemes increases” – although this will fall short of ‘safe harbour’ advice.

The paper going to the board, which has just been published, indicates that little of what the 49 respondents to its October consultation said gave the SRA cause to change its intended direction.

It said the most common theme arising from the responses was the need for clarity about the activities that will be permitted and prohibited, and there were a number of requests for the SRA to pre-approve arrangements before the ban comes into force on 1 April, along with calls for more prescriptive rules.

In response, the SRA said: “We appreciate that there is uncertainty over the precise activities that are prohibited under LASPO [the Legal Aid, Sentencing and Punishment of Offenders Act 2012] and will continue to develop our guidance on how we will interpret the Act for regulatory purposes, taking into account the views expressed and queries raised in the consultation, as well as any discussions we have with practitioners about their referral arrangements. We agree that where we form a view on a particular issue we should share this with the profession.

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“However, we remain of the view that prescriptive rules would be inconsistent with outcomes-focused, risk-based regulation and may encourage businesses to adapt their arrangements to fit within rules, without considering whether they comply with LASPO and the SRA principles or whether they achieve the right outcomes for clients and the wider public.”

The proposed changes to the SRA Code of Conduct would effectively place the onus on solicitors to decide whether the arrangements they have with third parties comply with LASPO, and where it appears to the SRA that a payment is a prohibited referral fee, it would be for the solicitors to prove that it was instead made as “consideration for the provision of services or for another reason”.

The board paper said some respondents specifically disagreed with aspects of the draft guidance, in particular that commissions received for arranging after-the-event insurance would contravene the ban, the extent of the information that needs to be provided for there to be a referral, and the SRA’s view that the ban applies to claimant work only.

There were also suggestions that the SRA’s approach to the ban will effectively water it down and that all payments should be banned, including those for marketing and that the only form of advertising that should be allowed is by individual firms in their own name.

The paper said in response: “We will continue to develop our guidance taking into account the issues raised. Where there are suggestions that our interpretation of LASPO is wrong we will review those aspects of the guidance. However, we believe that LASPO clearly envisages some payments legitimately being made to businesses that refer claims to practitioners and this must be reflected in our guidance.”

The paper said various concerns about alternative business structures (ABSs) were also raised, in particular that they would be used to ‘get around’ the ban. All it said in response was that the SRA will consider “carefully” the proposed referral arrangements of any ABS applicant.

The consultation had been a little more explicit, indicating that where a solicitors’ firm and claims management company apply to form an ABS, it may not be licensed if they would continue to operate as separate entities, with referrals being made between them.

Any changes the SRA agrees to make to the Code of Conduct will then have to be approved by the Legal Services Board, which is not expected to happen before March.

  • Legal Futures Editor Neil Rose will be present at the SRA board meeting tomorrow to report fully on the debate

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