Wednesday, 7 December 2011

Will the brave new world of Alternative Business Structures undermine the government’s objective in banning referral fees?



At long last, the Solicitors Regulation Authority has announced a date for the application process for those wishing to avail themselves of the Alternative Business Structure (ABS) regime. Appropriately enough, the date is 3 January, the first working day of 2012. After what seems an age since Sir David Clementi first proposed them (six years, in fact), the new year thus ushers in the brave new world of the ABS.

Is it, though, a world which we will like? I am not so sure. ABSs were much trumpeted following the passing of the Legal Services Act 2007, given that they will revolutionise the way in which solicitors run their businesses and allow non-lawyers to own and invest in law firms. Many high street sole practitioners and some small firms, fearful of the advent of ‘Tesco law’, were quick to sound a cautionary note over the ABS regime, but they are not the only people who have reason to worry. Those of us who believe in the legal profession, especially in the personal injury sector, also have cause for concern.

Image courtesy of the Travel Blog
For me, ABSs are Trojan horses in the battle against referral fees, in particular, and the sometimes over aggressive and unprofessional approach to PI marketing. They enable insurers and claims management companies to own and invest in law firms, thereby circumventing efforts by the Ministry of Justice to reform and improve the personal injury sector – because insurers and claims management companies could, in 2012, now start handling PI claims from start to finish. They will therefore control the whole process. 

Antony Townsend, the chief executive of the SRA, is looking forward to the new world, saying, in a press release dated 1 December: “We welcome the news that we will become an ABS licensing authority from 23 December. This is a milestone that we have been working towards for nearly two years.” He goes on to add that “the public can have confidence that ABS providing reserved legal activities will be regulated according to the same rigorous professional standards as traditional law firms.” 

But how will the ABS regime tackle this issue? There is also a raft of ancillary fees paid by those outside the legal profession, the likes of medico-legal companies, garages, reporting engineers and towing companies. These bodies all habitually pay referral fees, thereby fuelling a vicious circle of money generation around some personal injury cases.  What does the SRA intend to do about this, and the fact that these companies are likely to apply for licenses to set up ABSs? 

There is, though, still time to deal with this issue. The ABS regime gets underway from 3 January, but it does not emerge complete and fully formed. The date represents the start of the application process, but it is thought that actual ABS licences will not be awarded until late February at the earliest. It is to be hoped, between now and then, that a way is found to ensure that the brave new world of ABSs does not undermine that part of the government’s commitment, namely profiteering out of personal injury claims, which many of us support. It is further to be hoped that the professional conduct of cases by the solicitors profession is fully recognised and protected in this short period,  and not fatally undermined.