Brewer & Anor v Iqbal: IP Breach of Fiduciary Duty

Financial mis-selling fees

The Solicitors Regulation Authority (SRA) has recently announced its decision to adopt a fee cap system for solicitors managing compensation claims in relation to the mis-selling of financial products or services.

The new fee caps will be in relation to how much a solicitor can charge their clients for working on their cases.

This move aligns closely with the framework already set by the Financial Conduct Authority (FCA) for claims management companies (CMCs). The aim of the new fee system is to stop solicitors from charging excessive fees to claimants seeking redress for mis sold financial products and services.

Notably, the SRA will allow exceptions for cases deemed complex or novel. It will, however, require explicit approval from the SRA to exceed the established financial mis-selling fees limit. This decision was made following a consultation in April 2023.

Background and consultation process

A consultation in relation to introducing fee caps on financial services claims was launched by the SRA last year. This came following its board’s decision to embrace the FCA’s banding system which was introduced in March 2022 for CMCs.

Fee caps are likely to be introduced six weeks after the SRA obtains approval from the Legal Standards Board (LSB)

Despite some law firms’ reservations regarding the new fee structure, the SRA proceeded with the changes. The Liverpool Law Society notably voiced concerns that such standardisation was not necessary for the Financial Guidance and Claims Act 2018.

“Other law firms were concerned that fee restrictions may make the bringing of some types of claim unviable for law firms, impacting on access to justice.”

Details of the fee cap system

Under the FCA’s guidelines, fees are capped on a sliding scale, ranging from £420 for claims under £1,500 to £10,000 for claims exceeding £50,000.

This structured approach has been contentious among solicitors, who argue that it may render some claims economically unfeasible. They have also highlighted the potential impact on access to justice.

Moreover, the comparison of all financial claims to the relatively straightforward and formulaic payment protection insurance (PPI) claims was a particular point of contention, especially regarding the cap on higher-value claims.

Response to the fee cap decision

Despite the controversy, consumer groups, banks, and redress schemes have expressed broad support for the initiative due to its potential to simplify and clarify fee structures for consumers.

Conversely, solicitors’ fears highlight a deep concern for the profession’s ability to serve justice effectively, particularly in complex cases that may not fit neatly within the proposed cap system.

In response to the mixed feedback, the SRA has defended its position by emphasising the potential for law firms to remain profitable and viable under the new regime.

The SRA stresses the importance of a sector-wide approach to prevent regulatory arbitrage and ensure consumer clarity. Despite solicitors’ concerns, the SRA found no compelling evidence to deviate from the FCA’s established framework

To address ongoing concerns, such as the impact of inflation on fee structures, the SRA has promised a regular review of the banding framework.

 

Potential impacts on solicitors and claimants

The introduction of fee caps is likely to reshape the landscape for solicitors specialising in financial mis-selling claims.

Although the SRA aims to protect consumers and provide clear fee structures, there’s an underlying concern about how these caps will influence the types of cases firms are willing and able to take on. These changes may lead to a more selective approach in case acceptance, potentially affecting consumers’ access to legal recourse for financial misdeeds.

Moreover, we are likely to witness the closure of more law firms, particularly those who have already been impacted by the new fixed recoverable costs regime.

 

How can Recovery First assist?

If you are concerned about the impact of the proposed caps on financial mis-selling fees, speak to Recovery First.

Selling Work in Progress (WIP) as a means to exit the financial mis-selling market can serve as a beneficial strategy for firms impacted by the new fee caps. This approach enables firms to redirect their attention towards more lucrative practice areas.

In the worst-case scenario, you may be required to close your firm due to insolvency. Recovery First can assist you in this situation to ensure a compliant closure mitigating the risk of SRA intervention.

Whichever route you choose to take for your firm, Recovery First will ensure the most positive and profitable outcome is achieved.

Our clients receive 100% of their recoverable WIP, plus their allocated entitlement to deductions from damages, anecdotally returning significantly higher value than a traditional WIP sale.

The unique scheme offered by Recovery First is suitable for both law firms and for professional advisors working with law firm clients. Our team manage the transfer of files from start to finish; placing case files with an approved law firm to protect the integrity of the client’s case, while at the same time maximising the value of the work in progress.

We guarantee 100% confidentiality for all clients. If you would like to find out more about Recovery First’s process, feel free to get in touch today.

 

It's never too late to speak to Recovery First. Contact us now in the strictest confidence

Sally Dunscombe:

sally.dunscombe@recoveryfirst.co.uk

David Johnstone:

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