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.