The SRA has issued a consultation on new rules designed to restrict excessive fee charging when firms make compensation claims on behalf of their clients for mis-sold financial products. Once finalised, the rules will introduce important new regulatory safeguards into the Standards and Regulations, and enable the SRA to deliver on its statutory duty under the Financial Guidance and Claims Act 2018 to make rules ensuring an ‘appropriate degree of protection for consumers against excessive charges’, in other words preventing excessive fees being charged for claims management activities connected to financial products or services.
The SRA previously issued a discussion paper in 2021 which set out a proposed approach. That was for the SRA rules to be closely aligned with any new rules that the Financial Conduct Authority (FCA), which regulates the vast majority of this sector, brought out. The SRA could not, therefore, go ahead until the FCA did.
Now that the FCA has published its rules. the SRA can consult on the exact wording those rules should adopt.
Paul Philip, SRA Chief Executive, said:
‘This is important for both consumers and the firms we regulate. Fees for claims management work related to financial products or services have to be set at a level that means the cost is affordable for people seeking redress, while ensuring that it is still a viable area of work for firms that provide this service for those who need it. So although the number of law firms involved is small, the impacts for consumers could be significant.
‘I would urge firms currently providing claims management services and others who may be thinking about doing so to read the consultation and let us know what they think about our proposals.’
Responses to the consultation paper should be made by Wednesday 21 June, 2023.
The proposed rules are designed to respond to any solicitor-represented financial service claim. They include claims within the scope and jurisdiction of a statutory scheme and those that fall outside.
The SRA have identified four objectives as their starting point for developing their rules and these will also provide reference points by which the SRA can monitor and evaluate the impact of the rules in the future. Those four objectives are:
- Objective 1: Protect consumers from excessive fees during financial service claims and satisfy the FGCA’s requirements in doing so.
- Objective 2: Replicate the FCA’s approach to restricting fees for CMCs in our rules for solicitors, as far as that is appropriate.
- Objective 3: Balance our rules with our duties under the Legal Services Act 2007, including promoting access to justice for members of the public who wish to have professional representation for a financial service claim.
- Objective 4: Ensure consumers are empowered to choose and are well-informed about those choices for pursuing financial service redress.
In line with our four objectives, the SRA is proposing to replicate positioning in the FCA’s rules for claims management companies in its rules for solicitors and SRA-regulated law firms. This would mean that the SRA rules would confirm:
- The maximum percentage rate that may be charged to a client – ranging from 30% for redress valued below £1,500, down to 15% for higher value redress of £50,000+
- Maximum total fees that may be charged – ranging from £420 for redress valued below £1,500, up to a maximum £10,000 for redress of £50,000+
- Any charges eligible to be made outside the maximum rate and maximum total fee parameters must be reasonable
- Information that must be provided to clients (including prospective clients) – including information about the calculation of fees, and alternative redress routes
- Certain activity connected to the preparation of litigation proceedings (and distinct from the conduct of litigation itself) may be eligible to be charged outside the maximum rate and maximum total fee parameters
- Requirements in the rules do not apply retrospectively – to any agreements that are already in place at the commencement date of the rules if the claim process itself has not yet completed.
The consultation is available on the SRA website “Protecting consumers from excessive charges in financial service claims” whilst a draft version of the rules can be found in Annex 2 to the consultation.