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Approved regulators can ban referral fees if justified

27 May 2011

Frontline regulators will be allowed to ban referral fees provided they can offer evidence of the reasons for doing so, the Legal Services Board has said in a report that has otherwise found there was no “purely regulatory case” for an outright ban.

The LSB’s decision document published this morning, Referral fees, referral arrangements and fee sharing, has rejected calls by the Law Society and some members of the profession for the super-regulator to impose a blanket ban.

Instead the LSB has asked all eight approved regulators to put in place measures that will ensure sufficient transparency and encourage public confidence in the referral fee system.

“Sufficient evidence of consumer detriment, which would have been needed to merit a ban, has not been found,” the report says.

In an earlier preliminary report in September 2010 the LSB came out against the imposition of a general ban, suggesting “more proportionate forms of regulation were available to provide transparency and prevent abuse”.

Today’s report, however, acknowledges there are “some potential dangers in the unregulated operation of referral fees, not least that they are seen to undermine consumer confidence in legal services”.

Tasking frontline regulators to introduce a new set of rules, the LSB said: “There is clear evidence that current disclosure and compliance arrangements do not do enough to ensure consumer and public confidence.”

Leaving approved regulators to design arrangements for their own sectors “represents the right balance between the need for consistency of approach and the need to tailor response to the different conditions and risks across the sector”.

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