Impact assessment

Assigned risk pool - enforcement strategy

Assessment date:  12 August 2010Publication date:  12 August 2010

Summary of the enforcement strategy

  • 1.

    In anticipation of a significantly increased number of firms in the ARP for 2010/11, the SRA has proposed a strategy for the SRA Board to comment on and approve at its meeting on 16 July 2010.

  • 2.

    In summary, the enforcement strategy involves 5 main proposals:

    • Planning future action for the 60 year 2 firms which will not be eligible in any event to enter the ARP again for 2010/11
    • A drive to recover unpaid ARP premiums due for the 2009/10 period from year 1 firms including: a further request for payment accompanied by the threat of further disciplinary action if they remain in default; a warning that they will not be eligible to enter the ARP for 2010/11 if they are in default
    • A tougher approach to premium payment for firms entering the ARP for 2010/11, with those not paying premiums due being prioritised for possible regulatory/disciplinary action
    • Reviewing with Capita's approach to unpaid premiums
    • Increasing the capacity of the SRA to deal with the anticipated increase in the number of firms likely to fall into the ARP for 2010/11.
     

Information available for the equality impact assessment

  • 3.

    The full equality impact assessment carried out of the recent changes to the ARP sets out some useful background evidence to the ARP, in particular the rising disproportionality in its makeup over the last few years. In particular, BME firms now make up 41% of all ARP firms in comparison with 11% in the overall firm population and firms within the age band 31 to 40 make up 20% of all ARP firms in comparison with 11% of the overall population.

  • 4.

    Additional data in relation to the ARP premium default rate that has been referred to in this impact assessment and appended where relevant.

  • 5.

    The SRA has not consulted external stakeholders in relation to this internal strategy for managing the ARP firms for 2010/11.

Assessment of equality impact

  • 6.

    The potential equality impacts are set out below for each element of the strategy.

Managing the current year 2 firms

  • 7.

    Under the ARP rules, year 2 firms are not eligible to enter the ARP for a third year in any event. A firm may make an application to stay in the ARP for longer than 24 months but permission has been granted only in a few exceptional cases in the past. The enforcement strategy proposes to manage these firms closely, assisting them to secure market insurance or close as appropriate. There is no proposed change to the ARP rules in relation to these year 2 firms – the SRA has brought these firms within the enforcement strategy because of the size of the group this year.

  • 8.

    The data indicates that there is disproportionality in the make up of current year 2 firms:

    • BME firms make up 42 per cent as compared to 11 per cent in the overall solicitor firm population
    • Firms in the 31 to 40 years age category make up 23 per cent as compared to 11 per cent in the overall firm population
    • Firms in the 41 to 50 years age category make up 26 per cent as compared to 17 per cent of the overall population
     
  • 9.

    This would indicate that there is likely to be an impact for race and age equality. However, we have examined the proposals and consider that the impact, on balance, is likely to be positive. In any event, we consider that the SRA would be justified in proceeding with the proposed approach for managing this group for the following reasons:

    • the firms in question will already have had the benefit of 2 years in the ARP and are not entitled to third year in any event
    • it is in the interests of consumers that these firms are managed very closely and it is the SRA's responsibility to ensure that firms do not practice without professional indemnity insurance
    • the offer of a dedicated contact point for these firms, with support to help them secure market insurance will benefit those firms which have the potential to continue in practice
    • a clear and early dialogue with those less likely to be able to continue in practice, is a positive step to ensure that timely and appropriate plans are made and will ultimately be of benefit to both consumers and the firms themselves
    • the strategy is not proposing an approach that is significantly different from previous years.
     
  • 10.

    Although we do not have any meaningful data for sexual orientation, religion or belief or disability, we have not identified any other evidence to suggest that there could be an adverse impact on equality for these groups.

Taking a firmer approach to recovering unpaid ARP premiums

  • 11.

    There are two strands to this part of the strategy:

    • the actions that may be agreed with Capita, which is contractually responsible for collecting the premiums
    • the steps the SRA may take to encourage firms to pay the premiums due - by taking regulatory action against firms in default.
     
  • 12.

    At this stage there is no further detail available in relation to the approach that might be agreed between the SRA and Capita. However, the objective will be to seek a more effective approach to recovering premiums due, although in some cases it may not be commercially viable to pursue some of the firms in default.

  • 13.

    The SRA's approach is to take a firmer approach to regulation where the firm is in default and to use premium default to prioritise the order of firms we will be risk assessing at the point of entry to the ARP.

  • 14.

    These proposals will apply to all ARP firms and will impact in particular on those firms which default on their premium payments. We have already identified that there is disproportionality in the ARP overall and anticipate there will be a similar or increased level of disproportionality in the 2010/11 ARP.

  • 15.

    The consequences of these proposals will be to increase the pressure on ARP firms, and for some firms it may hasten their closure, so we have considered very carefully whether there is potential for any adverse impact on equality by looking in detail at the firms in default.

  • 16.

    The proposals will affect all ARP firms in default - the data set at Appendix 1 indicates that as at 8 July 2010, only half of all firms in the ARP are up to date with payments due on their premium. The average amount due is £22,355 - 67 per cent of all firms in default owe this much or less and 33% owe more.

  • 17.

    Tests show there is no statistical significance in the default rate as between the different categories of ethnicity and gender. The figures for the age categories are too small to carry out these statistical tests.

  • 18.

    We have also considered whether there are any differences in the default rate for firms according to their risk category. Of the 211 firms in the ARP on 8 July 2010, we have risk assessment ratings for 188 firms. Of these 188 firms, 22 per cent are classified as high risk, 40% as medium risk and 38% as low risk.

    Not all ARP firms had a separate risk assessment - some were already being dealt with by the SRA, some had already been referred to the SDT or were in the process of closing.

  • 19.

    The high risk group has a high default rate at 62/38, the medium risk group has a 45/55 default rate and the low risk group has a 42/58 default rate. We have broken down the data for each risk category by ethnicity, gender and age. We were able to run tests on some of the categories although none of them showed that the differences were of statistical significance.

  • 20.

    We have not been able to identify any other evidence to suggest that there might be a disproportionate adverse impact on any of the other equality strands arising from the actions that are proposed for firms in default. In any event, we would consider that the proposal to reduce the default rate is justifiable because unpaid premiums are recouped indirectly through increased premiums for the wider profession which in turn may be passed on to consumers.

  • 21.

    The proposals will not involve changing the ARP rules for firms in default:

    • non payment of the ARP premium already entitles the SRA to take a range of regulatory steps against the firm in default;
    • firms in default are already ineligible from joining the ARP for a second year;
    • firms entering the ARP this year will only be entitled to remain in the ARP for 12 months in any event following recent changes to the relevant rules.
     
  • 21.

    However, there is a high level of concern about equality issues in relation to the ARP particularly for BME firms and it is recommended there should be flexibility and proportionality built in to the proposals and this would be more consistent with the outcome-focused approach which the SRA is moving towards.

Increasing capacity at the SRA

  • 23.

    We do not consider that the plans to increase the capacity of the SRA to manage the regulatory work necessary for ARP firms would directly impact on equality.

  • 24.

    However, as the SRA's capacity is to be supplemented through the procurement of external providers, appropriate measures to ensure that these providers meet the SRA's requirements in relation to equality and diversity are essential. The services that these providers will be delivering are highly relevant to race and age equality in particular given the disproportionality that we know exists in the ARP and is likely to continue with the 2010/2011 ARP firms.

Promoting good race relations

  • 25.

    As part of the SRA's race equality duty we are also required to consider whether the proposed strategy will have an impact on relations between different groups, in accordance with our duty to promote good race relations.

  • 26.

    As BME firms are increasingly overrepresented in the ARP, there is an increasing risk that the burden of funding the ARP is 'blamed' on BME firms. This has the potential to damage race relations within the profession as between white and BME firms.

  • 27.

    It may be that the position is worsened by news of the unpaid premiums, which amounts to £2.5 million of the £4.5 million due. This matter has been raised on several occasions in the Law Gazette. A reduction in the default rate and a clear communications strategy about the ARP may help to dispel some of the myths.

Conclusions

  • 28.

    Although there was no clear evidence of adverse impact on equality arising from the proposals set out in the enforcement strategy, we propose to closely monitor the situation.

  • 29.

    It will be important to ensure that the strategy is implemented fairly and consistently across ARP firms and in a way that is proportionate and outcome-focused.

  • 30.

    The attached action plan sets out the steps that we propose to take and this will be managed in conjunction with the action plan drawn up as a result of our equality impact assessment for the recent changes to the ARP.

    Objective Action required
    Ensure the Capita approach for collecting premiums is assessed for equality impact Review when the arrangements are confirmed
    Ensure that the procurement process for additional capacity for ARP firms takes account of equality and diversity Build equality and diversity into the specifications for the service required
    Ensure that providers are required to demonstrate their ability to comply with the SRA's equality and diversity requirements
    Ensure that clear information about the ARP is available to the profession Develop a communications strategy

Appendix 1: ARP firms as at 8 July 2010 paid up or in default – numbers with percentages in brackets

A firm is classed as in default if it owed any sum as at 8 July 2010 according to Capita payments data.

Tests show that there are no statistically significant differences between the numbers of firms in default or paid by ethnicity and by gender E&D strands. There is insufficient data to run significance tests for the age band ethnicity strand.

Ethnicity Default Paid Grand Total
BME 38 (44%) 48 (56%) 86 (100%)
White 24 (49%) 25 (51%) 49 (100%)
No majority group 22 (55%) 18 (45%) 40 (100%)
Unknown 22 (61%) 14 (39%) 36 (100%)
Grand Total 106 (50%) 105 (50%) 211 (100%)
Age Default Paid Grand Total
22 - 30 3 (60%) 2 (40%) 5 (100%)
31 - 40 27 (61%) 17 (39%) 44 (100%)
41 - 50 27 (50%) 27 (50%) 54 (100%)
51 - 60 15 (47%) 17 (53%) 32 (100%)
61 - 65 2 (33%) 4 (67%) 6 (100%)
65+ 3 (43%) 4 (57%) 7 (100%)
No majority group 27 (45%) 33 (55%) 60 (100%)
Not provided 0 1 (100%) 1 (100%)
Unknown 2 (100%) 0 2 (100%)
Grand Total 106 (50%) 105 (50%) 211 (100%)
Gender Default Paid Grand Total
Female Male No majority group Unknown 21 (54%) 69 (51%) 14 (41%) 2 (100%) 18 (46%) 67 (49%) 20 (59%) 0 39 (100%) 136 (100%) 34 (100%) 2 (100%)
Grand Total 106 (50%) 105 (50%) 211 (100%)
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