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.