ACL welcomes new OFSI rule as endorsement of regulated professionals
The Office of Financial Sanctions Implementation (OFSI) has introduced a requirement that a practising Costs Lawyer must produce a report to support applications to pay legal fees out of frozen funds.
The move is to help OFSI comply with its legal obligation to ensure, when issuing a licence to enable the payment of fees and expenses for the provision of legal services, that those fees and expenses are “reasonable”.
“Some of these applications request permission for payment of fees in the millions of pounds. It is for the applicant to demonstrate to OFSI that the legal fees and expenses they are requesting payment for are reasonable,” it said in new guidance.
Although the requirement is for what it calls an independent ‘costs draftsperson’s report’ (CDPR), the guidance states that it can only be provided by a practising Costs Lawyer regulated by the Costs Lawyer Standards Board. They must not be part of the legal team undertaking the work covered by the application.
OFSI requires a CDPR to support a law firm’s claim where, within any six-month period, the total legal fees to be licensed – including counsel instructed via the solicitors and expenses – exceed £2m (including VAT). Where counsel is instructed directly, the threshold is £1m.
OFSI said: “Applicants may also choose to provide a CDPR proactively even where the relevant threshold has not been met but there are other factors which increase the complexity of the application. This may assist OFSI’s assessment of reasonableness.”
Where legal work is anticipated but not yet incurred, OFSI said it would accept a CDPR that assesses anticipated costs.
“For long-running legal matters, where it is not feasible to obtain a CDPR covering anticipated costs, applicants are encouraged to consider applying for licences on a quarterly basis, with an enclosed CDPR covering costs incurred during the relevant period.”
OFSI warned, however, that even where a CDPR concluded that costs were reasonable, it may still determine that reasonableness has not been fully demonstrated; license a lower amount than requested; or decline to license certain costs altogether.
The guidance said that the costs of obtaining a CDPR may be licensed too, subject to the reasonableness test. They can be included within the main legal services application or sought via a separate licence application.
“You may apply for CDPR costs before you submit the primary application, at the same time as an application, or as a separate application after the primary application has been considered. In all cases, OFSI will assess the CDPR costs in the same way as any other legal fees and reasonableness must be demonstrated.”
ACL chair David Bailey-Vella said: “We are pleased that OFSI has recognised the need to use a Costs Lawyer in undertaking such important work.
“Following on from the Mazur case highlighting the benefit of independent rights of conduct litigation, the move reinforces the value to both the public and the profession of properly trained and regulated costs professionals.”