Law Soc regulators take to task referral fee breaches

The Law Society’s regulation board is set to overhaul completely the rules and guidance governing the use of referral fees in what could be its first reversal of a decision made by the old-style society.

The board, which has been up and running since January 2006, decided last week (20 September) to examine the current underlying principles of the referral fee arrangements. That will take place at the November board meeting, following which there will be a wide-ranging consultation to examine possible changes to the rules and guidance.

The board also found that there are “significant breaches of the referral arrangement rules, including the core principles”.

In a statement, it added: “Some of these breaches have adverse effects on clients, and undermine confidence in the profession.”

The board agreed that its compliance committee, led by Sir Stephen Lander, should oversee a programme of enforcement activity to cut down on the rule breaches.

Regulation board chief executive Antony Townsend told The Lawyer: “It’s clear that there are significant breaches, not just technical breaches. We’ve got to improve compliance.”

The current referral fee rules were introduced in March 2004 by the Law Society after approval by the Law Society Council, lifting a previous ban on their use by law firms.

The rules as they currently stand allow firms to “share professional fees with a third party” as long as “the purpose of the fee-sharing arrangement is solely to facilitate the introduction of capital and/or the provision of services to a practice”.

Clients are also supposed to be made aware of the arrangement, but the cost of the particular referral must not be passed on to the client.

There was vocal opposition to the liberalised referral scheme regime after the ban was lifted in late 2004.

However, a proposed amendment at a December 2004 Law Society Council meeting to reinstate the ban was defeated by a two-thirds majority, with members of the council voting instead for a review of the rules by the Standards Board. The review produced new guidance, but did not change the rules themselves.

Referral fees hit the media spotlight again just a few weeks ago after it emerged that Salisbury firm Trethowans was offering a £75 referral fee to local hairdressers in return for passing on clients with marital problems.