Some personal injury firms are ‘in a state of panic’ over a government review of their dealings with claims management companies (CMCs), according to compliance experts.
The Ministry of Justice’s claims management regulator has ordered around 150 CMCs to provide detailed information on their finances and relationships with law firms. The order has been interpreted as reflecting concern at senior levels that the ban on referral fees, which came into force in April, is being flouted.
The demands, seen by the Gazette, include copies of invoices, descriptions of business models – and details of each company’s panel of solicitors.
The fear among lawyers is the ministry will share its information with the SRA, which is responsible for policing the referral fee ban. The SRA said it has a ‘robust working partnership’ with the claims management regulator, with a memorandum of understanding over joint enforcement work.
Penalties for breach of the ban can range from a £2,000 fine to referral to the Solicitors Disciplinary Tribunal and revocation of authorisation to practise.
Michelle Garlick, head of regulatory compliance for national firm Weightmans, who has advised some CMCs on their responses, said law firms should be aware of what information is being shared.
‘As part of a firm’s own due diligence and monitoring, firms should be asking the CMCs they have agreements with about the MoJ questionnaire,’ she said. ‘Have they completed it and returned it to the MoJ? Would they be prepared to let the firm see a copy of the reply? If not, why?’
Garlick said law firms should have nothing to fear if they have carried out a documented risk assessment of their relationships with CMCs, but simply telling the SRA that any payment is not a referral fee will not be enough.
Mark Briegal, partner at north-west firm Aaron & Partners and specialist in partnerships and company law, said many firms were flying ‘close to the wind’ on complying with the ban. In one case he had even seen agreements where the phrase ‘referral fee’ had been removed and replaced with ‘marketing fee’.
He added: ‘We have advised numerous new clients in states of panic after receipt of a letter from one or other of the MoJ and SRA, and have seen cases were they have clearly liaised (the emails from the regulator copy the other in).
‘Our guide is, to paraphrase, “if it quacks like a referral fee, it is probably a referral fee”.’