By Neil Rose


A new regime to cut down abuse of the referral fee rule - including requiring firms to gain permission before entering deals, adhere to standard form arrangements and make an annual return - is to be examined by the Solicitors Regulation Authority

(SRA), its board decided last month.



Despite several members' misgivings about continuing to allow referral fees, the board decided to take steps aimed at improving the poor compliance its research has uncovered, while leaving the door open to reimposing a ban at a later date if their efforts prove unsuccessful.



A report on the referral arrangements compliance project carried out by the SRA over the past year said there was 'evidence of systematic and persistent problems in solicitors properly managing their relationship with introducers, probably because of concern about potential loss of the flow of referrals'.



The project found significant and serious misconduct on the part of several solicitors, which led to at least 12 recommendations to refer cases to the Solicitors Disciplinary Tribunal.



Several board members expressed great concern about the levels of non-compliance, with solicitor Penny Owston saying there was enough evidence to support reimposition of the ban. But the overall sentiment was for further efforts to make the rule work, while not discounting a ban further down the track. 'We may in time have to take decisions based on principle and not pragmatism,' warned non-lawyer member John Stoker.



Some members criticised the data provided, arguing that as the compliance project targeted firms on the basis of risk, it did not offer a clear picture of the profession as a whole. However, Fred Jacobs, a director of inspection and investigation at the SRA, told the board that he suspected it would find as high a level of non-compliance among low- or no-risk firms.



Board chairman Peter Williamson said a wide range of options to improve compliance will be examined, including: a more detailed rule or expanded guidance for solicitors; a requirement to use a specified form of referral arrangement or particular standard clauses (which many members supported); greater publicity; introducing a permission regime; requiring firms to make an annual return of their referral arrangements; and not allowing firms to sue for their fees in cases where they have breached the rule.



The possibility of lobbying the government to introduce criminal sanctions against introducers who misbehave is also on the table, but will not be actively pursued at this time.



Law Society chief executive Des Hudson welcomed the SRA's 'considered approach' to the issue: 'We are committed to working with the SRA to ensure that solicitors are aware of the rules on referral fees to enhance compliance and that members of the public have sufficient information about referral fees to enable them to make informed choices. We will continue to raise concerns with government on the impact which referral fees are having on the legal market in the UK.'



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