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On 1st April 2013 the referral fee ban element of LASPO (ss56-60) comes into force. It will become unlawful for a solicitor to pay a referral fee for personal injury claims.

Arguments about whether this is in anybody’s best interests aside, the temptation for some firms (potentially encouraged by the CMCs) will be to try and find a way around the ban. After all, a sizeable proportion of the profession has built its business and marketing strategy on the referral fee model.

There are already a number avoidance schemes floating around, and no doubt many more will follow. Some will be legitimate; others will get caught by the ban and the offenders punished.

Practitioners need to be aware that the SRA – in its role as policeman of the ban – has the ultimate say on whether a referral fee is permitted or not.  The updated Code of Conduct (version 7) defines a ‘prohibited referral fee’ as:

(i) a payment prohibited by section 56 of LASPO; of LASPO; or (ii)  a payment made to or by you which appears to the SRA to be a referral fee for the purposes of section 57(7) of LASPO, unless you show that the payment was made as consideration for the provision of services or for another reason and not as a referral fee” (emphasis added)

So the upshot is that if and when some clever soul does come up with a way to technically get around s56 of LASPO, if the SRA think a payment is an unlawful referral fee then it is.

Furthermore, they almost certainly will not “green light” any particular business models and say as much on their website,

As the firm’s ultimate risk manager, the COLP must be involved in any and all strategic decisions regarding payment for referrals.  Bear in mind that even in non-personal injury cases, the Code of Conduct places certain other obligations on solicitors (see for example, Chapter 9).

It is likely that the COLP will take the view that any avoidance ‘scheme’ is inherently too risky from a regulatory point of view; whilst on the other hand becoming an approved ABS (perhaps with a trusted claims management company) is maybe worth the expense of the application to ensure that the firm remains financially viable.

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