138 law firms in the ARP close down as solicitors face bankruptcy action

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By Legal Futures

11 July 2011

Closed for business: most ARP firms agreed to wind down their practices

Some 138 law firms have closed after entering the assigned risks pool (ARP) in the past two years, while solicitors who do not pay their ARP premiums are being pursued into bankruptcy, the Solicitors Regulation Authority (SRA) has reported.

Most of the firms (119) shut through an orderly wind-down, while 19 were closed by an SRA intervention.

A further 58 firms left the pool after obtaining open market cover, leaving 236 firms still in the ARP.

Of those, 140 have paid their premiums in full, 66 have made some payment and 30 have paid nothing; two-thirds of the £12.9m premiums due remain outstanding.

A report going to this week’s SRA board meeting says Capita – which manages the ARP – is chasing non-payers with statutory demands and “pursuing individuals to bankruptcy”. Ten of the firms are facing disciplinary proceedings, with a further 116 subject to “other regulatory measures”.

The report says taking regulatory action has proved to be “slower and more complicated than at first envisaged”, meaning it began “later in the premium year than we would have wished”.

Last summer, the SRA introduced this new enforcement action to toughen up on firms which fail to find professional indemnity insurance and so end up in the ARP.

The SRA said it has put greater effort and resources into helping firms manage their way out of the ARP. The number of firms that have been visited has almost doubled – 96 firms were visited under the strategy in 2009/10 while 181 have been visited so far this year. Accountants KPMG have been brought in to monitor some firms in the ARP, at a cost so far of £119,000.

The SRA is likely to spend only £200,000 of the £1m allocated by the Law Society to crack down on the ARP. This is because fewer firms than forecast entered the ARP last year, while there were also fewer interventions required.

The report also said that concerns the enforcement strategy would have an adverse impact on black and minority ethnic (BME) majority-owned firms have not been borne out. The data for 2009/10 demonstrate that proportionately more white majority-owned firms closed either through intervention (6%) or through orderly wind down (33%) than BME majority-owned firms (3% and 31% respectively).

Further, BME majority-owned firms were more likely (25%) to find insurance on the open market in 2009/10 than their white majority-owned firm (16%) counterparts. This trend has continued in the outcomes data so far available for 2010/11.

SRA chief executive Antony Townsend said the SRA was taking a measured approach and was keen to help firms manage themselves out of the ARP, where this was possible.

Firms entering the ARP this year will have only six months of cover, while the ARP will be abolished in its entirety in 2013.

Meanwhile, the SRA board will also hear that the Law Society has not asked the SRA to take up any individual complaints about discrimination by indemnity insurers against BME firms, and the Financial Services Authority (FSA) has found no evidence of discrimination.

However, the FSA has emphasised to insurers the importance of guarding against unlawful discrimination.

This is being backed up by the Association of British Insurers, which is to send out guidance on the Equality Act as well as practical suggestions for both insurers and brokers to ensure they act fairly, including asking insurers to be clear on the types of business they are looking for or avoiding.

The Equality and Human Rights Commission – which was called in by the Law Society – has indicated that it is satisfied with the actions being taken.

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