Fees: warning over hiding costs in complex arrangements
It will be for law firms to work out if they are complying with the ban on referral fees in personal injury cases, with the law drafted in such a way to make some collective marketing schemes “vulnerable to being in breach”, the Solicitors Regulation Authority (SRA) has warned.
The SRA also said that if firms look to hide payments for marketing or advertising services in complex arrangements, it will ask for the government to use powers in the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) to prescribe the level of such fees.
Issuing an analysis of the 26 responses received to its referral fees discussion paper, the SRA said there was support for prescriptive guidance and confirmation of what would be deemed acceptable. However, it argued that outcomes-focused regulation allows regulated persons to adopt business models without the need for prescriptive rules.
“In the circumstances, regulated persons should be able to determine from LASPO itself the sort of arrangements which will be acceptable and the risks associated in entering into arrangements for the referral of work with third parties.”
While emphasising that it is not the function of the SRA to provide “safe harbour” guidance, the SRA said it is likely to publish further guidance setting out its legal interpretation of what is caught by the Act. “Our preliminary view is that the definition within the Act is fairly wide ranging.”
Respondents raised particular concerns about collective marketing/advertising arrangements, with a call for the SRA to look to government to confirm what constitutes “services for which payment may be made” under LASPO.
It said: “The SRA is working closely with organisations already operating within such schemes and will look to discuss concerns/issues raised so as to ensure that a clear and consistent message is delivered in the forthcoming months. The government and the SRA are particularly aware of the need to ensure that firms only enter into joint marketing arrangements which operate within the confines of LASPO.
“It should be noted, though, that LASPO has been drafted in such a way which makes some schemes vulnerable to being in breach. More specifically, the onus will be on firms to evidence that payment made for marketing/advertising services remain reasonable. Clear attempts to hide such fees in complex or hidden arrangements will present a risk to our regulatory objectives.
“Should this become prevalent then it is likely that we will ask the Legal Services Board (LSB) to recommend that fees paid for marketing/advertising are set by the Lord Chancellor for such services as allowed for in the Act.”
The responses voiced concerns over the survival of smaller practices who up until now have relied on referrals, and that certain practices will close or merge with larger firms or form an ABS “and whether this in itself will be of benefit to consumers if the primary objective of a business following this route is merely to circumvent the ban”.
The SRA said its role is not to take a view on whether the ban will be of benefit to consumers “but simply to ensure that firms are acting in accordance with the law”.
“The SRA recognises that ABS is an option that some will choose and emphasises that if a business model meets the authorisation requirements and the ABS complies with all its regulatory obligations, then the SRA will not oppose such arrangements. ABS may be an option as are decisions to merge with or acquire already recognised bodies. As referrals would be internal in this case, the SRA does not consider ABS creation as a way to avoid the ban.”
The SRA said it is working closely with the Claims Management Regulator, the Legal Ombudsman, the Financial Services Authority, the Office of Fair Trading and other regulators and organisations to ensure as far as possible that the ban is enforced consistently across sectors.
The next stage of the process will be a formal consultation on the proposals to implement the ban, including changes to the SRA Handbook.
