Peter Williamson explains how a specialist team will investigate non-compliance with the referral fee rules


Referral arrangements – and especially referral fees – crop up whenever I talk to groups of solicitors. The issue generates passionate argument. And members of the profession would have been reassured if they had listened to the Law Society Regulation Board’s recent public debate on the issue.



We went back to first principles. What really matters is not the detail of the rules – important though they are – but independence and integrity. The question we addressed was whether our rules on referral fees and arrangements undermined solicitors’ independence, and undermined public confidence.



We listened to solicitors strongly opposed to referral arrangements as well as those who feared the consequences if the practice were driven underground. We heard from lay members of the board who questioned whether referrals work in the public interest, and from those with experience of other regulatory fields who wondered why the rules could not be made to work in a profession that prides itself on its integrity. After all, fees of this kind operate in many other areas. What is essential is that any fees are transparent, and clients have a clear choice as to whether or not to use the services of a solicitor where a referral fee is involved.



It was rather shaming to read some of the research we had gathered that revealed just how badly a few members of the profession have been behaving and how clients have suffered. In some cases, solicitors seem to have stopped acting as independent advisers and are apparently in the control of the introducers. The board was deeply disturbed by the apparent lack of integrity and independence demonstrated by those firms and is determined that this should not continue.



But what emerged from our discussion on the basic principle of payment for referrals may surprise some. Despite the spectrum of strongly held views, the board agreed that the provisions that regulate referral arrangements are not fundamentally incompatible with the ethical duties of the solicitors’ profession. The fault lies not in the rules, but in the way some solicitors have chosen to ignore their principles. Changing the rules will not in itself improve matters if individual members of the profession fail – through ignorance or wilfulness – to comply with them.



We have decided on a new multi-pronged approach to making the arrangements work. First, we are pursuing a rigorous programme to enforce the rules. We are establishing a specialist team that will identify and investigate non-compliance. Where fees of hundreds of pounds are being paid to obtain a case, we will have to be sure that this is not resulting in poor-quality work. We are exploring the possibility of setting up a system of peer review to help us understand more about the real impact on clients.



We will be aided in setting standards by the arrival of a new regulator for claims management companies. We are seeking a memorandum of understanding with him to share information and evidence of the business activities of these companies.



We are launching an information campaign to improve understanding and compliance with the rules and principles underlying referral arrangements. This campaign will reach out to consumers as well as to the profession and introducers. Where necessary, we will highlight the kind of problems that are occurring and stress that breaches of rules are looked on as serious misconduct.



The board – which becomes the Solicitors Regulation Authority (SRA) in January – will be reviewing the position in July and December next year. I hope we shall find that it has proved possible to operate referral arrangements in a way that does not compromise solicitors’ independence and integrity. It would be a matter for regret if that were impossible – but if we conclude that, despite our best efforts, the current arrangements are incompatible with public confidence, the board will not shrink from considering more radical solutions, including a ban on referral fees. And we have not ruled out the possibility of asking the government to make non-compliance a criminal offence if our enforcement strategy does not work.



The board has made a difficult decision on this issue that has so divided the profession – but the board’s strategy will only succeed with the support of the profession. We will provide clear rules and guidance, but we need solicitors to step up and meet their professional responsibilities – tell clients if referral arrangements are in place and give clients the opportunity to question those arrangements. Practitioners have nothing to fear from being open about referral arrangements, if those arrangements preserve their independence to act in clients’ best interests. If solicitors do not explain referral arrangements to clients, the SRA will be asking them to explain why they have not done so.



Sometimes, the regulator has to wield the big stick, but that is not our principal objective. We know that the best guarantor of the public interest is not rules, but the commitment of individual solicitors to independence and integrity.



Peter Williamson is chairman of the Law Society Regulation Board