No loophole for fee-ban dodgers, SRA warns
The Solicitors Regulation Authority has warned it may not grant licences to alternative business structures set up solely to get round the referral fee ban.
The organisation today promised to look carefully at ABS applicants’ proposed referral arrangements and block business models not truly operating as one entity. In a consultation paper published ahead of next April’s ban, the SRA said there were concerns about law firms and claims management companies coming together under the umbrella of an ABS.
The paper said: ‘Models which suggest an intention to continue as more than one business, with referrals being made between them, may not be licensed, if we believe the referral arrangements will be unlawful.’
The paper has also revealed that the final details of the ban will not be approved until just weeks before it is due to come into force. Breaches of the referral fee ban will not be a criminal matter, but will be dealt with by the regulator with action that will be ‘fair, targeted, proportionate and transparent’.
Law firms that do breach the ban can be fined up to £2,000, or £250m for ABSs. Their authorisation or licence may also be revoked in certain circumstances. Individuals or entity can also be referred to the Solicitors Disciplinary Tribunal, which has the power to issue an unlimited fine or strike them from the roll.
The SRA (based at the Cube, pictured) said it was clear from responses to its June discussion paper there was scope for interpreting the Legal Aid, Sentencing and Punishment of Offenders Act – which contains the ban – in different ways. It noted there was a ‘lack of clarity’ about what business models would be affected.
Respondents were particularly confused about the difference between a marketing fee and a referral fee. The organisation stated that it did not intend to provide law firms with pre-approval of business models but said it was necessary to produce its own interpretation of LASPO.
But there was a warning that it will be for practitioners themselves to ensure their own compliance. A regulated person will be in breach of LASPO if they pay for or receive payment for a referral.
As an example, an insurance company that provides details of an accident victim to a law firm for money will be in breach of the ban.
But a website that receives a fixed annual fee from law firms in exchange for potential – and willing – clients’ details is not considered as a referral. A group of firms that each pay to set up a not-for-profit company to gather potential clients’ details would not be in breach of the ban.
But if the advertising was carried out by a commercial entity, and the fees paid by law firms depending on the number of clients referred, that would be unlawful.
The formal consultation process will close on 18 December and the SRA board will approve code changes by 23 January.
The Legal Services Board will approve regulatory framework changes in February, with the final version of the new rules published in early March.
Comments
Adapt to survive
I am very interested to see how the "traditional" law firm adapts during an extremely tumultuous time for the legal industry. Will an extra injection of legal marketing funds fill the gap left by the referral fee ban and the added threat of ABSs? Will newer law firms have to remodel more extensively than their more-established counterparts? Only time will tell, of course, but 2012 is shaping up to be a truly defining year for law firms.
Evolution
Like Darwin said changes in species occur randomly.
However it is our professionalism which should evolve so as to make it more accessible to the public and others. We should not "adapt" by ditching this most precious attribute, which is our most powerful defence against the actions and policies of unworthy politicians, and the rapacious demands of external investors.
The profession's voice needs to be heard, either through the medium of a new law society, or the existing society suitably reformed following any future actions permitted under the constitution
Good point voldemort (feels
Good point voldemort (feels very strange to type that), it's also worth remembering that the legal industry has been working with an extremely profitable and beneficial model until now so there is no need to "throw the baby out with the bathwater" by adapting needlessly or recklessly.
I agree that the profession's voice needs to be heard as there is a lot to discuss at this moment in time!
Talk tough, act weak-against
Talk tough, act weak-against the strong.
At the first whiff of grapeshot from an ABS which threatens action against the SRA because it hasn't been granted a licence, the SRA will back off. Even more likely it will just grant them to avoid such threats in the first place.
How can any CMC reasonably plan for the future?
I don’t normally feel the remotest bit of sympathy for Claims Management Companies, but, I have to say, it is completely unrealistic for the SRA to only publish details of the proposed ban just weeks before it comes into force. How any business can reasonably be expected to plan for the future without details of such fundamental changes to their regulatory framework is beyond me.
Which part of "a ban on
Which part of "a ban on referral fees" are Claims Management Companies deemed to be incapable of understanding? A referral fee is so similar to a bribe that it's not difficult to recognise.
Presumably the bit where they
Presumably the bit where they don't get any more money!
I think everyone should stop fussing
There were no referrals fees prior to 2004 as well and firms were getting their work, then after the ban why will there be a problem? If insurers stop their third party capture to gain referral fee's and there are no more CMC's chasing down claimants, why then shouldn't the claimants come direct to the law firm????
I hear some firms are being
I hear some firms are being set up and run by CMC's. Law firms being run by the MOB - who would have thought of it.
Can the SRA reassure us that
Can the SRA reassure us that Mr. Pale is wrong? A simple statement saying that they've never found a firm (probably during an intervention) where the partners say that someone else owns the firm, would clarify matters. Over to you, SRA.................
Tough but intelligent
Tough but intelligent regulation no doubt-
Why can't the SRA make it clear?
I accept that few on these boards have sympathy for CMCs but that aside, isn't it encumbent on the SRA to give some sort of guidance on the various shades of 'referral' that are acceptable, as a matter of principle? Seems plain lazy to wait for the various models to come up and then hammer them as it sees fit.
Is it me?
Why would a website charging a fixed annual fee from law firms for potential referral of claim would not be in breach while a commercial entity advertising to get claim and then charging a variable fee dependant upon the number of business leads referred would be in breach?
The website would presumably advertise to get claims too. And in terms of fixed fee one could argue that different levels of fixed fees would be set up – i.e. premier account, silver account and gold account for example which give access to a better stream of opportunity – i.e. claims.
Is not that still referral? Or the difference lays in the fact that a website charges for potential whereas a commercial entity charges for actual leads? If this is the case then it is not a very good reformative measure in my opinion.
I am interested to see how this pans out as I see it a rather all or nothing type of matter being either no referral fees or some referral fees. The current proposition would only lead to a different shape of essentially the same system and not to a reformed system altogether.
Do you seriously not
Do you seriously not understand the difference?
My God, we're in deeper crap than I ever thought!
How about explaining it?
How about explaining it?
Because one is paying for
Because one is paying for advertising, the other is payment for individual cases.
referral fees
anon,
you are clearly not a commercial person and i wonder what your actual role in business is.
the payment of a fee dependant upon results should never be a concern, it has works for years and drives the commercial capitalist world we live in.
why would anyone bother if they were being paid regardless of performance.
i see no problem paying a third party for performance related results.
presumably you conclude that while paying a website for marketing regardless of results is fine until such time as the results are so poor that you pull your business which then retrospectively makes your arrangement with them a referral?
The point is, results for
The point is, results for whom?
This is exactly why the FSA has changed the basis of "charging" for financial advice-because the results were for the seller and the intermediary-not the client. Fair enough, it's 26 years too late-but at least they've got round to it.
The regulators of the legal profession have gone exactly the opposite way-and it has taken Pariliament to sort it out.
Incidentally, my role in "business" was as a disinterested (not uninterested) professional being paid for dispassionate objective advice and subsequent action, if appropriate. The payment was for the objective advice-not for selling a "product" which may or may not be defective but no-one would know until later.
SRA aka Solicitors Reactive Authority.
The entire issue relating the ban on referral fees and the involvement of the SRA is an absolute fiasco!
The fact the SRA are coming into the fray so late in the game, just confirms the SRA are a “reactive” organisation as opposed to “proactive”. The SRA should have been at the forefront dealing with the issues surrounding the ban, but instead to come out and say there shall provide clarification just a few weeks before the implementation of the ban – typical of the SRA to bottle it.
To even think that there shall be no arrangements to circumnavigate the ban is naive.
Personally, I feel sorry for the first few “test case” firms which will be subject to an SRA investigation regarding their “marketing/consultancy agreements” as they will have to bear the brunt of the SRA and set the parameters and precedents of what actually is a referral fee agreement and what is not. In all honesty this could all be prevented if the SRA actually did their job and provided clarity as opposed to trying to police solicitors with batons and teargas!
SRA aka Solicitors Reactive Authority.
It should be clear to the meanest intelligence
I really cannot see what the problem is with the ban on referral fees.
1. Referral fees will be banned.
2. Solicitors will be able to either individually or jointly have marketing arrangements to get work in.
3. Anyone who tries to disguise referral fees as something else, does so very much at his own risk.
4. If you don't want to worry, then don't get involved in dodgy arrangements.
Read the consultation
I have great sympathy for anyone who reads this article and concludes that the consultation has nothing to offer them. The consultation sets out that the ban will be as detailed in the Act, not any new SRA version of the ban, and includes four pages of guidance on how the SRA plans to interpret the government’s ban. Contrary to what the article says, the final details of the ban were finalised when the Bill received Royal Assent in May. Why would anyone wait for rules, which appear to say no more than the Act, are approved by the SRA (months before April it’s worth adding, not weeks)?
The lack of clarity on what a referral fee is has made the legal press headlines numerous times. And yet the SRA becoming the only body to publish detailed guidance on what is and is not permitted under the Act, six months ahead of the ban coming into force, is not mentioned in the article. It’s not even clear that the SRA’s thinking on what is prohibited is now available to people who need to plan for the ban. I don’t know why that is but it is very unhelpful for everybody.