The spirit of the referral fee ban? It doesn’t exist

Does the Solicitors Regulation Authority regulate the legal profession or simply those practising the law? It’s a question that lies at the heart of many ongoing debates surrounding the future of regulation, and to my mind has yet to be fully resolved.

This week Richard Collins, executive director of the SRA, told a conference the regulator ‘can enforce the word of the law but not the spirit’ when it came to the referral fee ban.

Collins essentially said that as long as the SRA ticked all the boxes when it came to policing the ban, that must suffice. It was for politicians, not the regulator, to look at the intentions behind the ban and check if they’re being met.

He’s probably right, but that doesn’t mean this whole charade doesn’t stink.

We all know the ban was intended to stop insurance companies profiting from selling customers’ details to law firms. In turn that would reduce the number of claims and reduce the cost of car insurance.

There is some evidence that premiums have fallen, while the number of RTA claims opened between May and August dropped from 272,312 in 2012 to 191,128 this year – a whopping 30%.

But insurance companies? Having moaned and whinged about the impact of referral fees, the moment they were banned many of them have jumped straight into joint ventures with law firms. The ban has played right into their hands and the hunted has become the hunter.

Collins is, in effect, accusing joint ventures of defying the spirit of the ban but saying there is nothing he can do as long as business models conform to the wording.

A glance at the conditions on the AA’s successful alternative business structure licence application suggests the SRA is doing what it can.

The AA is told to make its branding and logo for AA Law sufficiently different from those of AA insurance, while directors of AA Law are not allowed to communicate with members of the insurance arm.

Where work is transferred from the insurance company to solicitors, it must be ‘made transparent to the client, in writing, the point at which AA Law Limited takes over conduct of a matter’.

That last condition illustrates how ridiculous this ‘ban’ has become. A referral is obviously happening, but because there is no ‘fee’ as such, it is compliant. Compliant but hardly what the government had in mind and arguably not in the interests of the client either.

Collins is right – the wording of the ban means the SRA is impotent to stop this.

I understand that the government may look again at the ban next year.

But with claims numbers down and insurers seemingly content with the unintended consequences, I wouldn’t hold out much hope for anything other than the status quo.

John Hyde is a Gazette reporter