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