The Legal Services Board has today effectively ruled out a ban on referral fees, but is likely to impose greater standards of transparency in their use.

In a paper outlining plans to improve regulation of referral fee arrangements, the LSB says there is not ‘sufficient evidence’ to ban referral fees and that to do so would be ‘wholly disproportionate’.

But the board said it would be wrong to ignore public, professional and judicial concern about the fees and that to continue with a ‘laissez-faire’ approach to their use would also be inappropriate.

The board says legal providers should disclose to their clients to whom the referral fee is paid, for what services, and the value of the fee. They should also be obliged to tell the consumer that they have the right to shop around for an alternative legal services provider. In addition, the LSB proposes that approved regulators should collect and publish all agreements between introducers and lawyers.

The consultation, which runs for 12 weeks, is informed by evidence from the LSB’s consumer panel and economic evidence.

The consumer panel previously found that there was insufficient evidence to suggest that the independence of lawyers is being compromised by the existence of referral fees and suggested the fees have actually widened access to justice.

Today’s LSB paper adds: ‘The objective should be to allow referral fees and arrangements – preserving their beneficial elements and addressing the challenges they cause to consumers.’

LSB chief executive Chris Kenny said: ‘This document sets out our own first thoughts emerging from this work. They are not definitive.’

Chair David Edmonds said: 'There has been long-running debate around these issues. But empirical evidence has been lacking. The proposals we are making today are underpinned both by economic analysis across the market, and by investigation of consumer attitudes.

‘As a regulator we are committed to proportionate intervention. Our hypothesis is that neither an outright ban nor a laissez-faire free-for-all would be appropriate.’

‘Instead, we suggest that clear obligations on transparency would preserve the beneficial impacts of the arrangements, while addressing the conditions that underpin concerns about consumer choice and transparency.’

The paper can be viewed at the LSB's website.

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