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Make breaching the ban on referral fees criminal, SRA says

Regulator backs 'most effective enforcement method'

10 October 2011

Making breaches of the ban on referral fees a criminal offence would be the most effective enforcement method, the Solicitors Regulation Authority’s chief executive has said.

Government proposals aim to introduce a ban on referral fees for personal injury work have disappointed some in the legal profession, such as the Law Society, who have called for a ban across the board, including conveyancing.

A separate motor insurance bill presented by former justice secretary Jack Straw last month has also targeted claims management companies by including provisions that would make referral fees illegal.

Straw’s Motor Insurance Regulation Bill would make it unlawful and a criminal offence to solicit, offer, or pay referral fees relating to a personal injury traffic claim.

Anthony Townsend told Solicitors Journal that a complete ban on all kinds of referral fee “might not actually deliver the goods”.

Instead, Townsend said, the SRA would continue to “press for harder enforcement on transparency and try to make claims management more tightly regulated”.

The regulator has been committed to reviewing the question of referral fees but the sudden introduction of draft legislation is bringing the issue nearer to the top of the SRA’s agenda.

“If parliament introduce a ban, that’s what we’ll deal with,” Townsend continued, “and we’ll say a ban would be more effective if backed by criminal, rather than civil, sanctions; that’s likely to make it more effective.”

Regulators and law makers in other areas have started turning away from criminal sanctions as a compliance and law enforcement mechanism, most notably in the area of environmental law.

But, Townsend said, in the case of referral fees, “part of the mischief goes way beyond solicitors firms or lawyers generally and therefore if you want a blanket ban there is something to be said for sanctions that can be applied across the board, in addition to our sanctions”.

This, he said, would address the current weakness that “although the SRA has been able to regulate solicitors and try to make sure they are transparent, they are not the only part of the chain”.

The issue of referral fees has divided lawyers and opinions have changed just over the past decade.

Initially against allowing referral fees, the Law Society then voted in favour in 2004, subject to transparency conditions.

The SRA board itself has changed its views. “It’s very hard to find the best way of targeting the problem,” Townsend said before adding that his organisation would work with the Ministry of Justice to make sure the proposals were workable.

The regulator’s concern, according to Townsend, is that the solution that is finally adopted is “practical and is genuinely going to reduce the risks”.

He went on: “The fundamental risks are not the existence of referral fees themselves, it’s what came with it. If referral fees were entirely transparent and didn’t lead to inflated legal costs or hopeless cases, then in a sense it wouldn’t matter.”

Earlier this summer research carried out for the Legal Services Board’s consumer panel concluded that there was no need for a blanket ban on referral fees. As the result, the LSB – having acknowledged the whole issue was not problem-free – decided it would not intervene but it left the option open to frontline regulators to impose a ban in their respective jurisdictions if they believed this was necessary.

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