Referral fees for personal injury claims will no longer be permitted from April 2013 onwards, whether they are received from brokers, claims management companies, repairers, credit hire organisations, insurers or other organisations.This includes a ban on any non-monetary inducement as well as on cash payments. The ban will apply to any claim that has a personal injury element.

Provision for the ban is contained in the Legal Aid, Sentencing and Punishment of Offenders Bill, with the Government citing the adverse effect on consumers’ insurance premiums as a major justification for the move.

Failing to observe the ban will not be a criminal offence, but is likely to mean the firm is the subject of enforcement action from relevant regulators, such as the Solicitors Regulation Authority (SRA) or the Ministry of Justice. The SRA published a discussion paper on the proposals is June 2012, and received a number of responses expressing concern about whether it could effectively enforce the ban.

The SRA has now launched a consultation, which runs until December 18 2012, on how it should implement, supervised and enforce the ban.

It has been highlighted that the move is likely to mean that personal injury firms become takeover targets. Another consequence of the ban could be that personal injury firms will form partnerships with solicitors who practise this area of law by way of an Alternative Business Structure.

Those operating in the personal injury market should ensure they have a business model that will remain permissible after the referral fee ban.