Regulators will reject requests to pre-approve business models that may flout the impending ban on referral fees.
The Solicitors Regulation Authority has confirmed it will not draw up detailed rules ahead of the ban coming into force in April, despite requests from members of the profession.
A number of the 49 respondents to the SRA’s consultation on implementing the ban wanted it to pre-approve arrangements before the ban comes in to force on 1 April.
In its response to the consultation published today, the SRA said it would rely on the flexibility of outcomes-focused regulation to police the ban.
But definitions of ‘prohibited referral fee’ and ‘payment’ will be added to the SRA Handbook in an effort to provide clarity on what is allowed under new legislation.
The Ministry of Justice has told the SRA that the ban on referral fees in personal injury must come into force in April amid concerns about the rising costs in litigation.
Respondents to the consultation also had concerns about the impact of alternative business structures and the SRA’s ability to enforce the ban on them.
The regulator admitted there may be attempts to ‘get round the ban’, as happened before it was lifted in 2004.
‘We will assess as high risk, arrangements which have been dressed up to appear complaints, when the underlying purpose of the arrangement is something different,’ the SRA response says.
The Legal Aid, Sentencing and Punishment of Offenders Act allows regulators to treat certain payments as referral fees, and the SRA’s response says the onus will be on law firms to show a payment for services is reasonable.
Any arrangement merely styled as a ‘joint marketing scheme’ is likely to receive extra attention, the SRA confirmed.
But group marketing schemes, where firms pay into a collective advertising campaign to attract work, would fall outside the ban.
Similarly, if a firm pays a fixed annual fee to a claims manager, which then offers potential willing clients the contact details of that firm, that would not be considered a referral.
The regulator’s response also addresses the concern that alternative business structures will be formed between claims management companies and law firms to get round the ban.
Stressing that ABS status ‘is not an easy option’ the SRA promises to look closely at applicants’ proposed referral arrangements. ‘Models which suggest an intention to continue as more than one business, with referrals made between them, may not be licensed, if we believe the referral arrangements will be unlawful.’
The SRA response makes it clear that firms will be in breach of the ban if they are referred prescribed legal business by another person and pay for that referral.
A breach of the ban could result in a fine of up to £2,000 by the SRA or, for more serious cases, a referral to the Solicitors Disciplinary Tribunal.
Whilst the ban covers personal injury claims, it also applies to claims for damages arising from the same incident.
The changes to the handbook are likely to be agreed when the SRA board meets in Birmingham tomorrow. The Legal Services Board should then approve the changes to the regulatory framework by mid-February, with the final version published in early March.