SRA introduces new rules to restrict fees recoverable in financial mis-selling claims

The SRA has taken steps to bring law firms and CMCs into line through the introduction of a cap on fees solicitors are able to recover from their clients when acting on their behalf in relation to financial mis-selling claims.

What are the new rules?

On 26 July 2024, the SRA Claims Management Fees Rules (the Rules) aimed at restricting "excessive fee-charging when firms make compensation claims for mis-sold financial products" came into effect. These new rules will apply to solicitors, firms and their employees that undertake what the SRA describes as claims management activities for financial services products.

In introducing the Rules, the SRA noted its obligations in accordance with the Financial Guidance and Claims Act 2018 (the Act). Section 33 of the Act requires the SRA to make rules to protect against excessive charges in relation to claims management activities that relate to financial products or services.

The Rules operate akin to the rules implemented by the FCA which restrict the amount of fees recoverable by CMCs from consumers when pursuing financial mis-selling claims on consumers' behalf – i.e. they operate on the basis of a sliding scale based upon the amount of redress obtained by a consumer.

Under the Rules, the amount law firms will be able to recover from consumers in relation to financial mis-selling claims is as follows:

Are there any exceptions?

There are several exemptions where the Rules will not apply – section 2.6 of the Rules states that they will not apply:

(a)To any charges for reserved legal activities;

(b)To charges imposed in circumstances where the relevant services were provided, or the agreement to provide them was entered into and instructions to pursue the claim were given, before these rules came into force;

(c)If no award for monetary redress is made in the client's favour in relation to the claim;

(d)If the claim does not fall within the scope of (1) the complaints resolution rules set out in the FCA Handbook (DISP: dispute resolution), (2) any statutory ombudsman scheme such as the Financial Ombudsman Service, the Pensions Ombudsman, or the Financial Services Compensation Scheme;

(e)To any charges for activities carried on in relation to actual or potential court proceedings in various circumstances, including where there are issues in relation to limitation, where there is no option to / or a consumer is unable to pursue the claim through a statutory ombudsman scheme and where there are potential complicated or novel issues; and

(f)To a claim made to one of the statutory ombudsman schemes where the SRA is satisfied that there are exceptional circumstances

The potential impact of the Rules

It is clear the SRA has sought to align itself with the FCA and exception (d) in particular is indicative of that approach.

The Rules address the practices of a limited number of law firms which predominantly deal with financial mis-selling claims. Since the FCA's introduction of the fee restrictions on CMCs, some law firms have undertaken significant marketing campaigns to increase awareness of their services. As above, many of these firms have then gone on to charge excessive fees to consumers.

With the implementation of restrictions on the amount firms are able to recover, we may see fewer of these firms operating within this area. Furthermore, firms may be dissuaded from taking on more complicated claims, but which may not amount to a claim involving a "novel, complex or important point of law". This may of course lead to questions over whether the Rules inhibit consumers' access to justice.

With that said, there will likely remain a significant number of firms which represent consumers in relation to financial mis-selling claims and who are able to stomach the newly imposed restrictions on recoverable fees for these types of claims.