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‘Very difficult’ to take action on referral fee ban, SRA director says

Liberalising legal services increases risk of 'black swan' event

26 June 2013

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It is "very difficult" for the SRA to take action over breaches of the personal injury referral fee ban, Andrew Garbutt, the regulator's director of risk, has warned.

Garbutt told Solicitors Journal that although it was clear that some firms "were not reacting to the ban", the SRA was not getting "a significant number of referrals about firms flouting it".

He said that because referral fees could be hidden from clients, the main source of information was from other law firms.

Speaking before the launch of the SRA's Risk Outlook next week, Garbutt said the SRA might have to take "pro-active" steps to deal with the issue, including random inspections.

He said another problem was the limited amount of data the regulator obtained from the PC renewal process.

"The more information we have, the more we are able to target firms so the better ones can be left to concentrate on the business of the day.

"Inevitably we will be going down the track of asking for more risk-related information, including information about how profitable firms are and their levels of debt."

However, Garbutt a balance had to be struck between asking for essential information relating to risk and asking for information simply because the SRA wanted it.

"Regulation is seen as a burden and the more you talk about regulation, the more of a burden people think they're under," he said.

"We are conscious of that burden. Getting firms to help themselves through risk assessment and self-assessment is a good approach used in other jurisdictions, which tunes in with our partnership approach."

Garbutt said developing new methods of risk assessment which were new to legal services regulation in England and Wales and had to be "invented from scratch" was not a quick process and or a question of "lifting and dropping" from other jurisdictions.

He said that among the biggest risks facing the profession over the next year, apart from financial stability, were rising complaints about the misuse of client money, and failure to co-operate or comply with SRA requirements, one example of which was the high number of firms which had still not nominated compliance officers.

Some firms lacked succession planning, making it difficult for solicitors to leave the profession, made worse by a greater reluctance to buy law firms.

There were also concerns over standards of service offered to "vulnerable consumers", for example the quality of immigration advice and will writing.

A further risk facing the profession over the next 12 months was "group contagion" within large ABS owners, involved in a range of non-legal activities.

He said the SRA would also be asking solicitors at next week's launch event about longer term risks and what the profession would look like in ten years' time.

"We still have ABSs to come into the market, which could be game-changers, or methods of delivery which are completely innovative."

There was also the prospect of the MoJ's review of the regulation of legal services, which could open up the Legal Services Act to "further review".

He warned that the more the legal services market was liberalised the greater the chances were of a "black swan" event, one way of describing an unprecedented event with far-reaching consequences.

"That is why the amount of investment into the SRA's risk assessment capability has increased, which will put us on the front foot."

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