Applicatin made by the Slicitrs Regulatin Authrity Bard t the Legal Services Bard under Part 3 f Schedule 4 t the Legal Services Act 2007, fr the apprval f changes t regulatry arrangements relating t the payment and receipt f referral fees in persnal injury cases. 1. This is an applicatin by the Slicitrs Regulatin Authrity (SRA) fr apprval f changes t the SRA s regulatry arrangements, t give effect t the ban n referral fees in persnal injury cases cntained in the Legal Aid, Sentencing and Punishment f Offenders Act 2012 (LASPO). The relevant prvisins f LASPO (sectins 56-60) are due t cme int frce n 1 April 2013. A. Ratinal fr change 2. Sectin 56 f LASPO prhibits the payment and receipt f referral fees in claims fr persnal injury r death by regulated persns, including individuals and entities regulated by the SRA. It als prhibits regulated persns, in the curse f prviding legal services, receiving a payment fr arranging fr a third party t prvide services t the client; and the payment and receipt f referral fees in relatin t ther claims fr damages arising ut f circumstances invlving persnal injury r death. 3. Sectin 57(1) f LASPO requires the relevant regulatrs t ensure that they have apprpriate arrangements fr mnitring and enfrcing the restrictins impsed by sectin 56 and allws regulatrs t make rules fr that purpse. Althugh there is n bligatin t make rules (in the frm f mandatry utcmes), we believe that ding s will prvide clarity fr bth the regulated cmmunity and fr cnsumers. This is because the existing Chapters in the Cde that deal with referrals are drafted n the basis that referral arrangements and the payment f referral fees are generally permitted (except in legal aid and criminal cases). It is therefre imprtant t make clear that there are cases where they are nt permitted; and that this is a regulatry as well as a legal issue. 4. In additin, sectin 57(8) prvides that these rules may prvide that certain payments will be treated as a referral fee unless the regulated persn can shw that the payment was fr services r anther reasn and nt fr the referral. We believe that adpting this apprach will be cnsistent with utcmes-fcused regulatin and that the SRA wuld need t make rules in rder t d s. 5. We believe that the SRA has the requisite disciplinary and regulatry pwers in rder t fulfil its bligatins under LASPO t mnitr and enfrce the ban. 6. We d nt believe that creating rules that replicate, add t r attempt t clarify the prhibitin in LASPO wuld be cnsistent with utcmes-fcused regulatin. Making the prhibitin wider wuld be difficult t justify withut evidence f 1
cnsumer detriment and adpting a narrwer apprach wuld nt fulfil the SRA s bligatins under LASPO. B Details f the SRA s current regulatry arrangements 9. Since Octber 2011 the SRA has adpted an utcmes fcused apprach t regulatin. This is a regulatry regime that fcuses n the high level principles and utcmes that shuld drive the prvisin f services t clients. In the SRA Cde f Cnduct we have replaced detailed rules with mandatry utcmes. These set ut the utcmes we expect the firms and individuals we regulate t achieve in particular cntexts whilst allwing flexibility in hw thse utcmes are achieved. 10. Referral arrangements and referral fees are dealt with specifically in Chapters 6 and 9 f the Cde f Cnduct and are als subject t the 10 SRA Principles that underpin all regulatry issues. The mst relevant principles are that thse we regulate must: uphld the rule f law and the prper administratin f justice; act with integrity; nt allw their independence t be cmprmised; act in the best interests f each client; prvide a prper standard f service t their clients; behave in a way that maintains the trust the public places in the regulated persn/entity and in the prvisin f legal services. 11. The utcmes relating t referrals fcus n independence, clients' best interests and transparency. Fr example, slicitrs must ensure that: their independence and prfessinal judgement are nt prejudiced by virtue f any arrangement; clients interests are prtected regardless f the interests f the intrducer; clients are in a psitin t make infrmed decisins abut hw t pursue their matter; and clients are infrmed f any financial benefit r ther interest which an intrducer has in referring the client t the slicitr; 12. Other than legal aid and criminal matters, the SRA des nt restrict the types f wrk in which referral fees can be paid and all types f wrk are subject t the same requirements. C. Nature and effect f the prpsed alteratins t the SRA s regulatry arrangements 13. The (draft) SRA Amendment t Regulatry Arrangements (Referral Fees) Rules [2013], which are set ut in Annex 1, were made by the SRA Bard n 23 January 2012, subject t apprval by the Legal Services Bard (LSB). 14. The effect f these rules will be t: (i) add new utcmes and indicative behaviurs int Chapters 6 (Yur client and intrductins t third parties) and 9 (Fee sharing and referrals) f the SRA Cde f Cnduct 2011. These prhibit thse we regulate paying r receiving a prhibited referral fee ; 2
(ii) add new definitins f terms used in the Outcmes, including prhibited referral fee t the SRA Handbk Glssary; and (iii) amend the prvisins in Chapters 6 and 9 f the Cde that set ut which f the utcmes apply in respect f in-huse and verseas practice. 15. The SRA Bard has agreed t insert the fllwing new utcmes int the Cde f Cnduct: Chapter 6 O(6.4): yu are nt paid a prhibited referral fee; 16. This will utcme will apply in relatin t in-huse practice but nt t verseas practice. Chapter 9 O(9.8): yu d nt pay a prhibited referral fee; 17. This utcme will apply in relatin t in-huse practice but nt t verseas practice. 18. It is prpsed that the terms in italics will be defined in the SRA Handbk Glssary as fllws: LASPO means the Legal Aid, Sentencing and Punishment f Offenders Act 2012. payment includes any frm f cnsideratin whether any benefit is received by yu r by a third party (but des nt include the prvisin f hspitality that is reasnable in the circumstances) and pay and paid shall be cnstrued accrdingly. prhibited referral fee means: (i) (ii) a payment prhibited by sectin 56 f LASPO; r a payment made t r by yu which appears t the SRA t be a referral fee fr the purpses f sectin 57(7) f LASPO, unless yu shw that the payment was made as cnsideratin fr the prvisin f services r fr anther reasn and nt as a referral fee. 19. It is prpsed that the utcmes will be supprted by the fllwing additinal indicative behaviurs: IB(6.3) having effective systems in place fr assessing whether any arrangement cmplies with statutry and regulatry requirements; 3
IB(6.4) retaining recrds and management infrmatin t enable yu t demnstrate that any payments yu receive are nt prhibited referral fees. IB(9.7) having effective systems in place fr assessing whether any arrangement cmplies with statutry and regulatry requirements; IB(9.8) ensuring that any payments yu make fr services, such as marketing, d nt amunt t the payment f prhibited referral fees; 20. The prpsed new utcmes will need t be read in cnjunctin with the ther utcmes in chapters 6 and 9, as well as the SRA Principles and ther relevant utcmes, such as thse relating t client care and cnflicts f interests. It is intended that ur definitin f a referral, fr the purpses f Chapter 9, will remain the same i.e. includes any situatin in which anther persn, business r rganisatin intrduces r refers a client t yur business, recmmends yur business t a client r therwise puts yu and a client in tuch with each ther. 21. This means that there will be sme arrangements that, whilst nt breaching the LASPO prvisins, will still be cnsidered a referral arrangement fr the purpse f the Cde f Cnduct and will still be subject t the relevant utcmes. This is because we believe that ur wider definitin prvides imprtant cnsumer prtectin by ensuring transparency, and the primacy f the client s interests, in relatin t a wider range f arrangements. Fr example, we cnsider it imprtant that where a third party recmmends a particular firm, the client is aware f any financial arrangement and can make an infrmed decisin abut the recmmendatin. D Statement in respect f the Regulatry Objectives 22. The SRA must, s far as is reasnably practicable, act in a way that is cmpatible with the regulatry bjectives set ut inn the Legal Services Act 2007, and in a way that it cnsiders t be mst apprpriate fr the purpse f meeting thse bjectives. Our plicy in relatin t referral fees in persnal injury cases has been led by the gvernment s psitin, as reflected in the relevant prvisins f LASPO. Our cmments n the regulatry bjectives therefre relate t ur plicy in implementing the ban, rather than the effect f the ban itself. 23. The SRA Bard is satisfied that its prpsals fr implementing the ban are cmpatible with the regulatry bjectives and represent the mst apprpriate means f meeting these bjectives whilst fulfilling ur bligatins under LASPO. The SRA Bard has nt identified an adverse effect n any f the regulatry bjectives as a result f the prpsed amendments. 24. The amendments highlight the statutry cntext f the ban and ensures that that thse we regulate d nt pay r receive referral fees where this is prhibited by law. The amendment therefre supprts the cnstitutinal principle f the rule f law. 25. The amendments d nt prevent the payment and receipt f referral fees beynd the prvisins f LASPO (save where these are already prhibited i.e. in criminal and legal aid cases). This is because we d nt have evidence f harm t the interests f cnsumers r the public t justify ging beynd the requirements f LASPO. We will cntinue t mnitr the situatin in accrdance with the LSB s guidance published in May 2010. Our prpsals fr implementing the ban 4
therefre have a neutral impact n the regulatry bjectives f imprving access t justice and prtecting and prmting the interests f cnsumers. 26. The changes supprt the need fr rganisatins (as well as individual lawyers) t be regulated, encmpassing cmpliance with the regulatry bjectives and the prfessinal principles. 27. Our draft Supervisin and Enfrcement Strategy, which was included in the cnsultatin and included in the SRA Bard paper (see Annex 2) reflects ur intentin t apply a risk-based apprach t enfrcing the ban, which fcused n the risks t the interests f clients and the wider public and t the regulatry bjectives. E Statement in respect f the Better Regulatin Principles 28. The SRA cnsiders that the prpsed alteratins fulfil ur bligatin under sectin 28 f the Legal Services Act t have regard t the Better Regulatin Principles. 29. The prpsals are prprtinate and targeted in that they fulfil the SRA s bligatin t enfrce the ban, by requiring the firms and individuals it regulates t cmply with their legal bligatins under LASPO, but d nt g further than that. 30. The SRA has cnsulted publicly n the prpsed changes and taken accunt f the views f stakehlders in develping its apprach. We intend t publish infrmatin fr the prfessin n hw we will supervise and enfrce the ban and n hw we will interpret LASPO fr regulatry purpses. We are therefre being accuntable and transparent in ur apprach t implementing the ban. F Statement in relatin t desired utcmes 31. The SRA s desired utcme is that the individuals and firms that it regulates cmply with the ban n referral fees in persnal injury cases, whilst at the same time cmplying with their regulatry bligatins in relatin t thse arrangements that are nt prhibited by LASPO. 32. We will assess these utcmes as part f ur supervisin and enfrcement strategy. G Stakehlder engagement 33. The SRA published a discussin dcument in June 2012, after LASPO had received Ryal Assent, setting ut ur early thinking n hw we shuld implement the ban. A frmal cnsultatin, setting ut ur prpsals and taking int accunt the respnses received t the discussin dcument, was published in Octber 2012. In additin we have held tw stakehlder events and held a number f meetings with ther regulatrs, members f the prfessin and businesses invlved in persnal injury referrals. A cpy f the reprt n the respnses t the frmal cnsultatin is included in the SRA Bard paper attached at Annex 2. H Statement in relatin t impact n ther Apprved Regulatrs 34. The ther apprved regulatr affected by the prpsed ban is the General Cuncil f the Bar, which is subject t the same requirements under LASPO as the SRA. Other regulatrs affected are the Financial Services Authrity and the Claims 5
Management Regulatr (which are relevant regulatrs fr the purpses f LASPO). The SRA has been in discussin with all f these regulatrs since January 2011 and we d nt believe ur prpsals give rise t any cnflict between apprved regulatrs. I Implementatin timetable 35. 4 February 2012 1 April 2013 Applicatin fr apprval f the SRA Amendment t Regulatry Arrangements (Referral Fees) Rules [2013] Prpsed change implemented in Editin 7 f the SRA Handbk J SRA cntact fr matters relating t this applicatin 36. If the Bard have any queries in relatin t this applicatin please cntact: Agnieszka Sctt Directr f Plicy Slicitrs Regulatin Authrity The Cube, 199 Wharfside Street, Birmingham, B1 1RN Telephne: 0121 329 6592 Email: agnieszka.sctt@sra.rg.uk Annex 1 Annex 2 draft SRA Amendment t Regulatry Arrangements (Referral Fees) Rules [2013] SRA Bard paper n the ban n referral fees in persnal injury cases, January 2013 6