You say, we pay?

Thanks to the Legal Services Board, the latest debate about referral arrangements seems to have come to an end. Or has it? The government, with its distaste for the perceived compensation culture, may still press ahead with a ban, which would be good news for Lord Jackson, the Law Society, and Lord Alan Sugar, who, during a recent Lords debate, used his customary colourful language to describe personal injury lawyers involved in the claims manage-ment system.

Recent debates involving referral arrangements have all concluded that there are still problems with transparency and effective and consistent enforcement by regulators. These issues still remain. The LSB, in its recent decision Referral fees, referral arrangements and fee sharing, said there is 'clear evidence that current disclosure and compliance arrangements do not do enough to ensure consumer and public confidence'. Some of these issues could be resolved if regulators took up calls for the introduction of a standard referral agreement and the approval of referral arrangements during the CMC approval process.

Part of the regulatory problem is the lack of consistency. Two of the key regulators are at opposite ends of enforcement thinking. The Claims Management Regulator is seen as a 'light touch' that strictly enforces regulations where clients are potentially exposed to harm, but goes easier where breaches of regulations are of a technical nature only. At the opposite end is the SRA, regarded as a 'heavy touch', that takes action even where a breach is technical in nature and does not expose clients to harm. A good example can be seen with six-monthly reviews of referral arrangements. The CMR would see this as a technical issue and not one that would harm clients if not carried out, yet the SRA would see this as a clear breach and take action whether or not clients were put in harm's way.

Second guessing

This October, the legal profession will see the introduction of outcomes focused regulation and the new SRA handbook; both of these have been heralded as enabling firms to be more flexible and innovative in the provision of legal services to their clients. However, I believe tthe new rules dealing with referral arrangements will leave firms trying to second guess what the SRA will expect to see in terms of compliance.

The new referral rules have been substantially changed to take account of OFR and no longer specify key actions that have to be carried out by introducers; for example, there is no explicit requirement for a law firm to ensure introducers have informed clients about the arrangement before making the referral. Recent advice from the SRA states that it will expect firms to have sought certain assurances from introducers, like they do now, that such action had been taken; the problem is the SRA doesn't want to be explicit as this would not be in line with OFR.

The new rules, and the interpretation put on them by the SRA, will still see law firms having to police introducers, requiring them to either challenge those that are not transparent with clients, or walk away. The problem for firms is that they will no longer be able to point to a specific rule to support any challenge about introducer non-compliance as these rules will no longer exist, it will merely be a law firm's interpretation of a rule, which introducers will challenge.

If the referral system is to go forward as envisaged by the LSB there must be clarity for all involved.