ABS countdown | Referral fee ban creates more confusion for ABSs

The SRA's controversial ban on ?referral fees in personal injury cases, which was foreshadowed by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO), is due to come into force in April 2013, and the regulator recently published its latest consultation on the subject.

The Solicitors Regulation Authority (SRA) acknowledges that there is scope for interpreting LASPO in different ways and 'some lack of clarity' about which business practices and models might be affected by the ban. Particular confusion surrounds the absence of rules regarding 'pooled marketing resources' and payments for services, and one cannot help wondering whether the absence of clear guidance for applicants whose proposed business model could be affected by the ban might be viewed as conspiracy or cock-up.

For most ABS applicants, the requirements are a more detailed version of those to which all law firms are subject under Outcomes Focused Regulation, principally being the ability to demonstrate a viable business plan and the installation of effective management systems and controls including a risk register. But personal injury firms, which as those of us who provide consultancy assistance on ABS applications are aware constitute a significant proportion of the current applications, the referral fees ban presents a major complication.

Lack of certainty

Most such firms are seeking to consolidate into one or more ABSs both the payer and recipient of referral fees, the aim being to come to some internal arrangement between the two such that no referral fee is actually paid. There are many possible models for achieving this aim and a lack of certainty as to what the SRA is prepared to allow and what it will refuse to accept. Earlier this year the SRA acknowledged that it was likely that a number of ABSs would be formed within the post-LASPO personal injuries industry and said it didn't see evasion of the ban on referral fees as necessarily a reason to refuse an ABS licence. However, in its latest paper, the SRA warns that it may not grant licences to ABSs which appear to be designed solely to get round the ban.

It is well-known that the ABS application process operated by the SRA is not exactly fast-track, often taking six or seven months to grant a licence. Applicants offering up new models for personal injuries work are obviously keen to know whether a new model proposal has a reasonable chance of success before submitting their application. The SRA is rather less resolved to give such opinions, ostensibly so that it does not pre-judge the application itself. The regulator has stated its concern that law firms and claims management companies might be coming together under the umbrella of ABS solely to avoid the ban.

Applicant fall-out

Further uncertainty exists about whether there is already not enough time for ABS licences to be issued before April 2013. The SRA has issued around 33 licences since it began receiving ABS applications in January 2012. It is unclear how many more applicants are already 'in the pipeline'. Earlier this month the SRA chief executive Antony Townsend said that there would be 100 more authorised ABSs within the next year and that the authorisation process would speed up. This is a much lower number than had been anticipated. Presumably many applicants fall out during the application process since it seems likely that many more than 100 have applied. It also appears to ignore the 400 or so legal disciplinary practices which are supposed to passport over to become ABSs by the end of April 2013.

In any event most of the fee-ban related ABS-seekers may already be too late in applying for licences to be operational before the referral fee ban kicks in. This would have the effect of preventing practitioners from taking on new business for several weeks, or even months, until they can find new business models which are acceptable to the regulator.

It may be true that those involved in the operation of referral fees are not always recipients of great sympathy from the rest of the legal profession

Conspiracy '“ probably not, but cock-up? It does rather look like it.