High-volume claims outfits must declare they understand the rules

The Solicitors Regulation Authority is to take the unprecedented step of requiring high-volume claims firms to declare they understand its rules.

Following a review of the consumer claims sector which uncovered troubling areas of potential blind spots, the regulator is contacting more than 500 firms in the sector demanding that they complete a mandatory declaration confirming they are compliant. These firms will also be required to identify areas in which they need to improve and take immediate action.

The SRA has been increasingly concerned that firms handling thousands of cases in areas such as financial mis-selling, diesel emissions and housing disrepair are not heeding warnings to meet their regulatory obligations. It now has 95 investigations open relating to 76 law firms linked to potential misconduct while involved in this work.

Anna Bradley, SRA chair, said: ‘High-volume consumer claims can provide access to justice for many when done well. However, there are widespread issues in the market, and this is harming consumers. We are writing to firms requiring them to declare they understand our rules and are complying with them. Where we see poor practice, we will take robust action.’

A review carried out over the past year has identified different ways in which consumers are not being treated fairly or kept properly informed about their cases. The SRA surveyed 129 firms handling 2.4 million claims in total and then visited 25 firms in person. Of these only 11 could show they had shared the required client care information with all claimants when taking them on. Just 12 of the firms visited had shared information on costs and how the claims would be funded.

Common themes identified included weak systems and controls to monitor claims referrers, a lack of due diligence on litigation funders, a failure to consider clients’ best interests when entering funding deals and inadequate advice about the merits of the claims. The SRA also found evidence of inadequate client onboarding processes, with few checks on client ID and conflicts of interest.

Several of the firms’ heads of department appeared to lack understanding of regulatory requirements, with one firm in particular having no measures in place to manage financial stability.

The review found that some funders were companies registered in jurisdictions where ownership and control may be difficult to establish. This created the risk that investment funds could include proceeds of crime or money from sanctioned individuals.

Only a small proportion of firms were including these types of checks in their due diligence, and some firms did not know where their funders sourced the money they were lending to the firm.

The SRA stressed that the high-volume consumer claims sector can provide an effective route for consumers to enforce their rights, but there is concern that a ‘significant number’ of the firms involved are undermining this purpose through ignoring their regulatory duties. This is not only leading to consumers facing harm but is undermining public trust in the profession.

In the past three years, a number of high-profile firms working in this area have failed, including Sheffield based SSB Law where clients were unexpectedly pursued to pay adverse legal costs despite being told their cases were being run on a no win, no fee basis.

The SRA remains worried that in many cases claimants are signing up to such funding agreements without fully understanding how ‘no-win no-fee’ arrangements work in practice, and the potential risks they may be exposed to should a claim fail.