Banning of referral fees - More info now released

The Solicitors Regulation Authority has warned it may not grant licences to alternative business structures set up solely to get round the referral fee ban.

The organisation promised to look carefully at ABS (Alternative Business Solutions which applies to many claims management firms as well as law forms) applicants’ proposed referral arrangements and block business models not truly operating as one entity. In a consultation paper published ahead of next April’s ban, the SRA said there were concerns about law firms and claims management companies coming together under the umbrella of an ABS.

Breaches of the referral fee ban will not be a criminal matter, but will be dealt with by the regulator with action that will be ‘fair, targeted, proportionate and transparent’.

Law firms that do breach the ban can be fined up to £2,000, or £250m for ABSs. Their authorisation or licence may also be revoked in certain circumstances. Individuals or entity can also be referred to the Solicitors Disciplinary Tribunal, which has the power to issue an unlimited fine or strike them from the roll

It will be for practitioners themselves to ensure their own compliance. A regulated person will be in breach of LASPO if they pay for or receive payment for a referral.

As an example, an insurance company that provides details of an accident victim to a law firm for money will be in breach of the ban.

But a website that receives a fixed annual fee from law firms in exchange for potential – and willing – clients’ details is not considered as a referral. A group of firms that each pay to set up a not-for-profit company to gather potential clients’ details would not be in breach of the ban.

But if the advertising was carried out by a commercial entity, and the fees paid by law firms depending on the number of clients referred, that would be unlawful