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Fees for running financial service claims are to be capped, the Solicitors Regulation Authority has agreed. The new maximum charges replicate those already imposed by the Financial Conduct Authority, based on the compensation the client receives.
Analysis by the solicitors’ regulator found that law firms working in this area would still be able to operate profitably and remain viable, while clients would benefit from extra clarity and certainty.
The SRA rejected the suggestion that a framework of maximum charges would stifle competition, as the bandings would be broad enough for firms to charge different amounts within each.
FCA charges which the SRA will replicate
| Band | Redress awarded for a claim (£) | The maximum percentage rate of charge | The maximum total charge (£) |
|---|---|---|---|
| 1 | 1-1,499 | 30% | 420 |
| 2 | 1,500-9,999 | 28% | 2,500 |
| 3 | 10,000-24,999 | 25% | 5,000 |
| 4 | 25,000-49,999 | 20% | 7,500 |
| 5 | 50,000 or above | 15% | 10,000 |
A paper presented to last month’s board meeting stated that consumer groups, banks, redress schemes and the Legal Services Consumer Panel broadly supported the proposals. It revealed that 'Liverpool Law Society, some law firms and one member of the public disagreed', arguing that the proposed maximum charges would make it unviable for law firms to provide representation in some cases and lead to a contraction in the number of firms doing financial claims work. This would in turn reduce access to representation.
The SRA paper stated: ‘The evidence we have and which we presented as part of our consultation, is that the FCA’s banding framework is broadly suitable for the firms we regulate. Despite consultation and significant engagement, firms have not provided us with evidence to contradict this and our view is therefore that we should mirror the FCA’s framework in our rules.
The SRA will periodically review the banding framework to consider whether fees should be adjusted. An exceptional circumstances exemption, requiring SRA permission, will allow firms to charge more in the most complex cases. The board agreed the changes which are now subject to approval from the Legal Services Board.
The cap was a requirement brought in by the Financial Guidance and Claims Act in 2018 in response to concerns that claims management companies were charging up to half of people's compensation for running their claims. It was felt by the SRA that the FCA should lead initiate the regulatory response to the legislation, giving its greater experience in overseeing this sector.
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