In May 2024, the Solicitors Regulation Authority (SRA) published a stark warning on its website to law firms engaged in financial product mis-selling compensation claims, urging them to adhere strictly to their professional obligations. The warning comes at a time of rising concerns regarding the practices adopted by law firms in the UK dealing with high-volume claims, often involving multiple clients.
Warning To Law Firms Working On Financial Compensation Claims
The SRA’s warning notice, together with guidance on the broader issue of claims management activity, was written following consultation with the Financial Conduct Authority (FCA) and the Financial Ombudsman Scheme (FOS) and emphasises the need for law firms to secure proper instructions from clients and to ensure robust supervision of staff handling financial services claims. This call to action is particularly important given the potential surge in complaints related to car finance arranged at unnecessarily high interest rates.
Key issues highlighted by the SRA include:
- Instances where firms initiate actions and generate costs without obtaining clients’ consent
- Inadequate due diligence during client onboarding, and
- Failures to respond promptly or adequately to client instructions.
The published guidance addresses these specific concerns and provides broader guidance on issues such as working with third parties, fee structures, and the necessity of explaining after-the-event insurance to clients in no-win, no-fee cases. It also brings together previous guidance on areas including claims related to mis-sold payment protection insurance (PPI), holiday sickness, and personal injury.
Paul Philip, Chief Executive of the SRA, reiterated the importance of treating clients as individuals rather than mere numbers within a mass claims process. He stated, “Whichever mass claims area they are working in, solicitors’ obligations are very clear. We expect the profession to treat clients as individuals, not just a number within a group. This means, for example, communicating with them clearly, giving them a proper assessment of their specific case and related decisions to be made, and asking them for consent before taking any actions in their name. Basically, making sure they adhere to their overall obligation to act in their clients’ interests at all times”.
Some Key points from the SRA’s Warning Notice on High-Volume Financial Services Claims and Guidance on Claims Management Activity
The SRA’s warning notice on high-volume financial services claims, highlights several critical areas of concern and provides detailed recommendations to ensure compliance with professional standards. Some key points from the warning notice and guidance are as follows:
- Client instructions and consent – Law firms must obtain explicit instructions from clients before starting work and generating costs.
- Due diligence in client onboarding – Proper due diligence is crucial during the client onboarding process. This ensures that only high-quality and accurate claims are progressed.
- Advising clients about the merits of financial service claims – Law firms must fully consider the merits of any claim when advising clients about their matters and the options available to them. This should include taking reasonable steps to access and assess information about the possible merits of pursuing a claim and about any relevant options that might then be available to the client.
- Prompt and adequate responses– Firms must act promptly and adequately in response to client instructions.
- Working with third parties – When collaborating with third parties, firms should maintain stringent oversight to ensure that the services provided meet the required standards and that clients are fully informed about any third-party involvement.
- Fee Structures and Costs – Transparent communication regarding fee structures and costs is essential. Clients should have a clear understanding of the financial implications of pursuing their claims, including any after-the-event insurance involved in no-win, no-fee arrangements.
- Explaining After-the-Event insurance – In cases involving no-win, no-fee agreements, it is vital to explain the nature and implications of after-the-event insurance to clients. This ensures they are fully aware of the potential financial risks and benefits.
By issuing this warning and guidance, the SRA aims to prevent the recurrence of improper practices that have previously caused concern within the mass claims sector. Law firms are reminded that their primary obligation is to act in the best interests of their clients, ensuring transparency, accountability, and high standards of service at all times.
Final Words
The SRA’s warning serves as an important and timely reminder for law firms to uphold their professional duties diligently, particularly when dealing with high-volume financial compensation claims. By adhering to the guidance and ensuring meticulous attention to client needs, firms can maintain the integrity of the legal profession and continue to provide valuable support to those seeking redress for financial mis-selling.
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