There would be no need for the Compensation Act 2006 if solicitors complied with their professional rules, the government's head of claims management regulation said last week.


Mark Boleat insisted regulation of the claims management sector was only necessary because of solicitors' own breaches of the referral fee rules.



His comments follow the Lord Chancellor's remarks earlier this month that he would like to 'get rid' of referral fees and about his 'distaste for the financial traffic in personal injury litigation' (see [2006] Gazette, 19 October, 5).



Addressing members of the British Insurance Law Association, Mr Boleat said: 'Every personal injury case finishes with a solicitor. Solicitors are obliged to comply with Law Society rules about referral fees and duty towards clients. If they complied with these there would be no need for this Act.'



Mr Boleat expressed dismay at the extent of breaches revealed in a recent Law Society practice standards unit report. One-third of law firms systematically breached the requirement to disclose a referral fee, while 61% failed to ensure that introducers complied with the introduction and referral code.



However, in contrast to Lord Falconer, Mr Boleat later told the Gazette that he did not regard an outright ban as the solution. He said: 'A ban on referral fees would not work - you would have subscriptions instead. At least with referral fees, there is a chance of it being transparent.



'The Law Society will be playing its part in enforcing the rules and I believe that will make all the difference... We have got to stop the flow of business that's illicitly obtained on the ground.'



A spokeswoman for the Association of Personal Injury Lawyers (APIL) said it was 'ridiculous' to suggest that solicitors had any enforcement power over the 'appalling' practices of some claims farmers - insisting that is why the Compensation Act is needed.



Law Society chief executive for representation, Desmond Hudson, said solicitors 'do not always have the power and influence in their relationship with introducers that Mr Boleat suggests' and it is 'plainly wrong to suggest that the Compensation Act is only necessary because of non-compliance by solicitors'.



Law Society Regulation Board chairman Peter Williamson said 'strong regulation' of claims management was needed, and the board would work closely with Mr Boleat. The board will review the underlying principles governing referral fees next month.



Mr Boleat also confirmed that he would not be regulating insurers who handle claims for individuals who have been in an accident with their policyholders, known as 'third-party capture' schemes. He said this was regulated by the Financial Services Authority, and would be 'more on its agenda from now on'



By Rachel Rothwell