Bradley: Too many firms don’t have their house in order
A ban on using the term ‘no win, no fee’ and enhanced oversight of law firms are among ideas put forward by the Solicitors Regulation Authority (SRA) to make the high-volume consumer claims market work better.
It also urged the government to take forward the Civil Justice Council’s recommendation earlier this year to introduce regulation of third-party litigation funding.
A discussion paper issued today said the regulator was “seriously concerned that consumers are not well served by this market”.
It follows publication of a thematic review released last month – which showed significant shortcomings in the ways law firms were handling volume claims – and various warning notices and pieces of guidance, with the SRA also currently investigating 76 firms operating in the area on top of five that it has closed down.
The SRA has also written to more than 500 firms, asking for detailed information about their caseloads and demanding declarations of compliance with their regulatory obligations.
“This should drive individual firms actively to review and improve their current approach where necessary,” the paper said.
“It will also provide evidence to support our consideration of how we can further strengthen our regulatory model in this area.”
The discussion paper is aimed at gathering views from stakeholders on the wider issues in the sector and what the SRA could do about them.
“Maintaining the status quo is not an option. The scale and range of issues we are seeing in high-volume consumer claims is prompting us to think widely about how and where improvements can be made.
“Our work has highlighted that the issues we are seeing are not confined to law firms. Pursuing high-volume consumer claims with a law firm can also involve working with a range of other parties. These can include unregulated firms, claims management companies, insurers, litigation funders and expert witnesses.
“Our concerns about how consumers’ interests are being protected extend across these activities, and some of the risks we are seeing lie beyond our regulatory powers.”
The SRA said it has been working with other regulators and with government, and the paper listed five specific challenges, starting with improving transparency and clarity for consumers about their claim.
“Our strong view is that… tighter safeguards must be established regarding marketing, advertising and on-boarding. Making sure consumers are adequately informed could include use of standardised wording, accessible checklists, or templates during the onboarding process.”
The ‘no win, no fee’ label did not give consumers “an accurate view of what could be involved when pursuing a claim – in particular, the risks to the consumer and potential costs they might incur if a firm doesn’t manage a claim appropriately or a claim is unsuccessful”.
The SRA will shortly issue a new warning notice on using the term but the paper asked whether it should “restrict, prevent or caveat” its use.
It was concerned as well that technology-based onboarding of clients risked firms not properly addressing consumers’ individual needs, as well as obtaining their informed consent to act.
“We have also received reports that some consumers find themselves being unexpectedly represented by more than one firm for a single claim.”
The second challenge was managing risks around litigation funding, saying that “without swift and decisive action to introduce compulsory regulation of third-party litigation funding, some of the fundamental risks driving adverse incentives in this market will remain unaddressed”.
The thematic review found some firms have taken on very high levels of borrowing relative to their annual turnover, risking their financial stability as well as inappropriate influence from funders.
Acknowledging that regulation of funders would take time, the SRA said shorter-term measures would include issuing further advice to the profession this year on using litigation funding.
The third challenge was making sure after-the-event insurance met consumers’ needs. The SRA will update its advice to solicitors and consider more robust moves, such as specifying requirements like anti-avoidance clauses.
The fourth challenge was “making sure our regulation keeps pace with a changing market” and particularly whether firms active in this area required more regulatory oversight.
“This could include enhanced authorisation and oversight of both the firm – and key personnel – to make sure good governance processes are in place and risks to consumers’ interests are well managed.”
The final challenge was “delivering wider improvements across the system”, which would require co-operation with others.
“Thinking about good practices seen in similar areas such as group litigation orders, is there more could we do in this area?” the discussion paper asked. “What more could others do?”
SRA chair Anna Bradley commented: “The risks and issues we are seeing in the high-volume consumer claims market are unprecedented. We are already investigating 76 law firms and are continuing to gather evidence from others, so we can identify where else we need to intervene.
“Too many firms don’t have their house in order, so we need to use all the levers at our disposal to protect consumers and identify poor practice.”
The discussion paper will lead to a consultation next year on more specific proposals.
The SRA will be speaking about its work on volume claims at our Claims Futures conference on 22 October in Manchester.
I’ll believe it when I see it. Get rid of ambulance chasers and 80% of lawyers will be on the dole.