Policing the referral fees ban

The Solicitors Regulation Authority (SRA) has acknowledged it will be unable to fully enforce the ban on referral fees for personal injury cases due to law firms forming alternative business structures (ABSs), as well as difficulties in defining “referral”.

It has also predicted a bleak future for small firms doing personal injury work, as large firms pick up leads from small referral networks that are unable to respond to the ban, due to come into force in April 2013. This, combined with existing challenges such as the stagnant housing market, could lead to “a steep increase in the number of financial failures among small firms”, according to an SRA discussion paper published last week.

The SRA paper says policing referral arrangements that involve advertising will be “problematic”, as claims management companies “may legitimately argue that they are carrying out marketing for groups of firms”.

Claims management companies could also avoid the ban by joining with a firm of solicitors to become an ABS.

“There would be no need for referrals, and therefore no referral fees would be paid,” the SRA paper states.

“We believe that, provided that all of the requirements for authorisation are met and the ABS complies with all of its regulatory obligations, we cannot seek to prevent such arrangements simply because they are set up to avoid being caught by the ban.”

The SRA warns that it could impose licence conditions on an ABS or refuse authorisation.
John Wotton, Law Society president, says: “The ban should not prevent firms’ legitimate marketing activity.”