The Law Society Council will this week be asked to maintain the controversial rule allowing referral fees for the time being, against a backdrop of 'significant evidence' that some law firms and referrers are not complying with disclosure requirements.

The review of the rule - requested by the Master of the Rolls in March 2004 after he allowed Chancery Lane to relax the previous ban - found that 45% of solicitors polled in a survey did not check that introducers had explained the details of referral arrangements to clients.


As a result, the standards board has recommended enhancing awareness and enforcement of the rule, including more active and targeted monitoring by the Law Society's practice standards unit (PSU) - which in the first quarter of 2005 found disclosure breaches among a substantial minority of those firms (37 out of 190 visited) that paid referral fees.


However, the board found no clear evidence of problems with the independence of solicitors' advice to clients, although it said 'this remains an area of concern and further research is required'.


The board will also investigate the case for banning referral fees where the introducer has a continuing and potentially adverse interest in the transaction, such as an estate agent, and whether there are other areas of work - beyond legal aid and criminal matters - for which referral fees should be prohibited.



Board chairman Andrew Holroyd said it is still early days for the rule, and that 'as a regulator, it would be wrong to act on the information we've got so far' to rework or even overturn it.


But he added that the board is 'very concerned' that a section of the profession appears to be in breach of the rule and so it is taking immediate action through the PSU.


The paper said restrictions on referral fees can only be justified if there is a clear regulatory reason. The board did uncover concerns that referral arrangements may sometimes restrict clients' choice of solicitor and called for further research on this as well. It found 'no compelling evidence' of the impact on costs to the public, but recognised the likelihood of firms trying to recoup referral fees from clients.


Slightly fewer than a third of the 1,100 solicitors interviewed for the Law Society's omnibus survey had referral arrangements in place, some of which did not involve a fee.