Firms that fail to pay ARP premium will face closure
Firms in the assigned risks pool that have not paid their premiums by October will be closed down, the Solicitors Regulation Authority said today as it unveiled a tough new enforcement programme to clamp down on ‘financially unstable’ firms in the pool.
The SRA said that by the end of the month it would contact all ARP firms that have not paid their premiums to inform them that they ‘must pay promptly’. Those that fail to do so will face ‘regulatory sanctions, and/or court action, and/or will be declared ineligible for any further term in the ARP and closed down’, the SRA said.
SRA board chairman Charles Plant said that ‘by October, any firms whose position has not been resolved by these processes will face the immediate likelihood of intervention to close them down’.
Steps will also be taken to ensure that firms that are reaching the end of their maximum two-year term in the ARP will have left the pool by October.
Law Society president Linda Lee commented: ‘We welcome this decision, which should reduce the costs of the ARP, which are ultimately borne by the profession, help to create a more affordable solicitors' PII market and improve protection for the public. The Law Society has been calling for a more rigorous management of the ARP for sometime and we will be providing extra funding to enable the SRA to implement the new measures effectively. The Society will work closely with the SRA to ensure that the measures are implemented in a way which is fair both to firms which are currently in the ARP and to the wider profession.’
The ARP is the insurer of last resort for firms that cannot obtain insurance on the open market. The pool charges punitively high premiums, which many firms in the pool fail to pay.
The move to take action against ARP firms that do not pay their premiums will be welcomed by insurers, which fund the cost of the ARP in proportion to their share of the solicitors’ indemnity market, and pass this cost on to the profession. However, there are some concerns that the enforcement could have an adverse impact on ethnic minority firms that entered the ARP because they were unable to obtain insurance on the open market due to possible discrimination by insurers. Ethnic minority firms comprise 11% of law firms overall, but make up 41% of firms in the ARP.
Plant said: ‘Compulsory professional indemnity insurance is an essential part of the existing safeguards of the current arrangements to protect consumers of legal services.
‘While it is right that firms experiencing difficulty in obtaining insurance should be given some assistance to do so, it is wrong that firms that are financially unstable or pose a significant risk should be propped up.’
There are currently 213 firms in the ARP, but this figure is expected to rise following what is expected to be a difficult renewal for firms this October.
Comments
SRA closing down firms
Why not also close down those firms who charge low fees and offer a really poor service.
The low budget conveyancer who won't respond to letters or faxes or return telephone calls and then demands immediate exchange and blames you when explaing delay to their client.
Or wills done for £70.
Those firms who want to be "cheap" should pay more in insurance premiums.
SRA Daleks
Exterminate them! Exterminate! Exterminate!
Thats a lot of firms to be intervened in !!!
Knee jerk reaction to placate insurers ahead of this years renewal.
More like the bureaucrats
More like the bureaucrats creating more work for themselves so they can claim even more money for doing precious little other than ruin the profession.
Are their salaries published? After all, the profession pays them- "i think we should be told" in the words of Private Eye.
APR
I rarely stick up for the SRA but the firms concerned have not been able to get insurance. One has to ask why.
I know the premiums in the APR are crippling, but the firm have not all paid them. I would expect a firm operating without insurance to attract the attention of the SRA. It is compulsory after all.
I would expect a firm outside the APR to attract atention if the premiums were not paid. Why should those in the APR be in a better position than those firms outside the APR?
How is it in the interest of the profession or the public to allow this to continue?
I agree intervention appears to be an expensive and unwieldy sledgehammer but it would, I assume, be the last resort if the firm could not be disposed of any other way. However, the sucession rules mean that not many firms would want to merge with or take over an ex-APR firm, especially in these times.
If the firms who are unable
If the firms who are unable to pay were limited companies (some might be) they would be committing a criminal offence by trading whilst insolvent. How can it be proper to allow such a situation to continue?
Fairness and effective targeting
Whilst I generally agree with these noble intentions, part of the issue is that firms in the ARP with a turnover under £500K are penalised significantly more than those firms say, with a turnover of £5m. Using the ARP formula, a firm under £500K will pay 27.5% plus SRA fees whereas a firm of £5m pa will pay approximately 19.2% of turnover.
Notwithstanding the evidence of insurer discrimination against certain ethnic groups, this is an example of both clear discrimination and unfairness from within the SRA which in itself is contributing to the creation of 'financially unstable' firms. Sure, chase and eventually shut down the bad firms, and quickly, but of 25 firms I am currently working with on risk management and helping them exit the pool, I can confidently say that only 3-4 represent a potentially higher risk than many firms I know of in the 'open market', regardless of ethnic origin.
Also, can Capita (the 'manager' of the ARP) explain their clear lack of success over 10 years and can the SRA explain why they (Capita) are still in situ after such abject failure?
Why do we have the ARP?
The punative rates charged by the ARP leave little prospect for firms to pay for the premium, but that is a market economy; if those are unable to purchase insurance on the open market, there is highly likely to be a problem with the firm's risk profile. Why should those firms then be able to continue to trade at the expense of the rest of the profession? To be facing a renewal where 16-18% of each lawyer's premium is loaded to pay for the ARP is disgraceful.
The ARP's rules must be enforced and it's about time they were. The alternative will be the ARP being a top 10 insurer by 2 October, which was never its intention. The ARP has prolonged the agony for the majority for the majority of firms at the rest of the profession's expense. It is unnecessary and should be closed.
Why assume the insurers are wrong?
As with a number of stories you have again highlighted that BME-owned law firms seem to be having a tough time. E.g. you point out that "Ethnic minority firms comprise 11% of law firms overall, but make up 41% of firms in the ARP." You also pointed out in another story that BME firms appear to be referred very often to the SRA.
There are two ways you can go with this now -
1) that the 'system' is being unfair and basically racist vs BME solicitors,
or,
2) that the system is just going about it's business, taking note of where there are problems and reacting accordingly.
In either case there is good story here and plenty to be done. If the SRA and insurers are acting unfairly this is a massive scoop. If this is not the case, then it seems to suggest BME law firms are less well run than non-BME firms. If so, then this needs looking at too. Rather than shying away from what you have discovered, why not examine why this is the case? Are there education-linked reasons for this? Are there other reasons? Is it down to clientelle? Socio-economic status? Lack of experienced senior lawyers? Weak finances?
The Law Gazette is helping no one, especially not BME lawyers, if it raises the idea in the mind of people that the 'system' is biased, without doing anything to address why BME firms do seem to fail more often. To ignore this is like avoiding helping somone because you don't want to hurt their feelings by suggesting they may actually need some support. Either way, the Gazette as the mouthpiece for the profession needs to jump one way or the other.