The regulatory regime for claims management has improved enforcement but the SRA's effectiveness is hindered, says Mark Boleat


In his comment piece (see [2007] Gazette, 27 September, 14), Jeff Zindani argued there were too many regulators and not enough enforcement in respect of claims management companies. He reported as 'news' that unregulated companies are using unlawful practices to circumvent the Compensation Act 2006, and that this would come as no surprise to personal injury lawyers.



This presents a distorted position. Of course, some people try to get around regulation by using unlawful practices - this applies in all sectors. The task of the regulator is to minimise this. That is what the Ministry of Justice (MoJ), in exercising its regulatory functions, has been doing. Just nine months after the Act became law, the regulatory regime was fully implemented. Every instance of malpractice reported to the department is investigated and dealt with. As a result, many businesses that claimed they were not aware of the need to be regulated have sought authorisation, and enforcement action has commenced against those deliberately flouting the law.



Mr Zindani claimed that a black economy of case-trafficking has developed since the Act was implemented. Is he really claiming that everything was perfect before, and that the Act has worsened the situation? In early 2006, the Law Society visited 135 solicitors' practices which dealt with personal injury claims. It found there was inadequate disclosure of referral fee arrangements in 51% of cases, and a failure by solicitors to ensure that introducers are complying with the Introduction and Referral Code in 61% of cases.



The Solicitors Regulation Authority (SRA) update, published on 2 September, began by saying: 'Our recent enforcement campaign revealed some shocking examples of misconduct by some solicitors who have referral arrangements.'



If these arrangements had been fully observed by solicitors, then the Act would not have been necessary in respect of personal injury claims. But it was recognised that regulating claims management companies as well would facilitate the enforcement of the referral arrangements. The MoJ, the Law Society and SRA have worked closely together. The rules of conduct for claims management companies have been designed to dovetail into the SRA rules, and the SRA and the MoJ meet regularly.



I would agree that there is not enough enforcement - yet. This applies in many other sectors as well. The SRA has to work within an unsatisfactory framework. Most regulators have the power to revoke the licences of those they regulate, the businesses then having a right of appeal. The SRA is forced to take cases to a tribunal in the first instance. This can limit the effectiveness of the SRA.



I would not agree that there are too many regulators. The MoJ, the SRA and the Financial Services Authority each have well-defined rules, and ensure that they complement each other's work and do not impose conflicting requirements.



Mr Zindani concludes by asking 'why regulate a sector that may no longer be required?' Solicitors are not the best judges of what consumers require. If they were, claims management companies may never have developed in the first place. They exist only because solicitors are willing to buy claims from them, and solicitors are obliged by the referral code to ensure business is acquired in a way that meets SRA rules.



The Act should be seen as a useful complement to the SRA's powers. The more transparent and better regulated market that now exists will help consumers decide which services they need.



Mark Boleat has worked with the Ministry of Justice in implementing the Compensation Act regulatory regime. Until August, he was head of claims management regulation and now is an adviser to the department