Firms reported to the SRA in 2013

April 2015

 

Summary of our findings

This is the first in a series of reports which will look in more detail at some of the patterns and trends which are shown in our annual regulatory monitoring data.

Over a number of years our monitoring data has shown that more Black, Asian and minority ethnic (BAME) solicitors are working in firms which are reported to the SRA for investigation than we might expect, given their proportion in the practising population.

This 'incoming disproportionality' is one of the main reasons why there are such disproportionate regulatory outcomes for BAME individuals as compared to the practising population. We decided to look in more detail at our data to see if we could better understand why this might be. We asked ourselves two questions:

  • Would the picture be different if we looked separately at who was making these reports?
  • If we looked at the firm population in a different way, e.g. according to turnover rather than size, would the pattern of disproportionality be the same?

We have looked at the data for 2013; there is more information about the profession and regulatory outcomes in the full diversity monitoring report for this year.

About the firm population and reports received in 2013

Small firms make up the majority of the firm population but the larger firms employ a significant number of regulated individuals.

  • There were 7,083 firms with between 1 and 4 regulated individuals open at the end of 2013 - these firms made up 67.9% of the firm population, but only accounted for 13.7% of regulated individuals working for firms at that time;
  • There were 163 firms with over 80 regulated individuals open at the end of 2013 - these firms made up 1.6% of the firm population, but accounted for 43% of regulated individuals working for firms at that time.

BAME regulated individuals are concentrated in smaller firms:

  • 24% of the individuals working in firms which have between 2 and 4 regulated individuals came from a BAME background in 2013;
  • 9% of the individuals working in firms which have between 26 and 80 regulated individuals came from a BAME background in 2013.

There is a significantly higher proportion of BAME individuals in firms reported to the SRA as compared to the total firm population:

  • 24% of the individuals working in firms which have between 2 and 4 regulated individuals came from a BAME background and this rose to 33% for individuals in firms reported to the SRA in 2013.

We get more reports about smaller firms than we do about larger firms, but larger firms have a higher number of average reports per firm.

  • There was an average of 0.4 reports per firm for firms with 1 individual in 2013, which rose to 4.9 reports per firm, for firms with over 80 individuals.
  • The proportion of firms reported to the SRA increases with firm size. 77% of firms with 81+ individuals were reported to the SRA at least once in 2013 which compares with a report rate of 16% for firms with 1 individual.

Would the picture be different if we looked separately at who was making these reports?

There are some differences in the proportion of BAME individuals in firms reported by different instigator types. In 2013:

  • The public (representing 55%) and the solicitors profession (representing 23%) made the largest number of reports about firms and this pattern is consistent across all firm sizes.
  • There was a higher proportion of BAME individuals in firms reported by other organisations and where the report has been instigated by the SRA itself, as compared to firms reported by the public and the solicitors' profession.

Although reports from other organisations only made up 6% of all reports received in 2013, we will look further at these reports to understand why there are differences, although the numbers are likely to be too low to draw any reliable statistical conclusions.

Reports recorded as having been instigated by the SRA represented 16% of all reports received in 2013. This category includes one off reports which may have originally come in to the SRA from an external source, but are redirected to a central team for recording and risk assessment. It also includes firms which we have identified for further investigation because they have not complied with certain regulatory requirements. For example, firms which failed to provide annual accountants reports or provided reports which were qualified in 2013 would have been identified and referred to our central risk assessment team. A report would be recorded against each firm with the relevant SRA department entered as the instigator.

With our current systems and approach to recording it is not easy to identify accurately which of the reports recorded as instigated by the SRA may actually have originated from an external source. We anticipate this will be possible when we introduce our new IT systems next year and will be looking further at this category of reports to better understand the breakdown and patterns shown.

If we looked at the firm population by turnover rather than size, would the pattern of disproportionality be the same?

There is a correlation between turnover and firm size and similar patterns are shown when we look at the firms reported to the SRA in 2013, broken down by turnover and firm size.

  • The proportion of regulated individuals working in firms with a turnover of between £20k and £100k was over 40%.
  • The average turnover for firms with over 75% BAME individuals was consistently lower than firms with a lower proportion of BAME Individuals

Using a breakdown by turnover would be useful as it would allow us to differentiate between smaller firms where the turnover is lower and the proportion of BAME individuals is higher.

Introduction

This report forms part of our response to Professor Gus John's Independent Comparative Case Review (ICCR) which looked at the differences in regulatory outcomes for Black, Asian and minority ethnic (BAME) solicitors and white solicitors at the SRA.

Although the ICCR found no evidence of discrimination by the SRA, Professor John did identify evidence of disproportionate outcomes for BAME solicitors at three stages of the regulatory process:

  • at the point at which a case is raised or a complaint registered against a solicitor or a firm;
  • in the process of investigating that complaint; and
  • at the point at which an outcome is determined and a sanction is imposed.

In our published response to the ICCR, we made a commitment to improve our understanding of the causes of these disproportionate outcomes, so we can address the issues and identify priority areas for action to reduce that disproportionality.

In this report we decided to focus on the first point of disproportionality identified by Professor John - disproportionality in the reports coming in to the SRA. We have been aware of this incoming disproportionality for some time, it was pointed out by Pearn Kandola in their 2010 report: 'This disproportionality in the number of cases raised means that by default, the SRA need to respond to a disproportionately high number of cases against BAME solicitors'.

Since 2011 we have included data in our annual monitoring report to reflect the level of incoming disproportionality for that year. As a result, we can compare our decision making data (for example the number of misconduct allegations upheld or cases referred to the SDT) with the reports received rather than the overall population data for the profession. This gives us a more accurate measure of any disproportionality that arises from our regulatory decision making or investigation processes.

It is clear from the Pearn Kandola report, the ICCR report and our own monitoring data, that the incoming disproportionality does not fully explain the disproportionate outcomes in our regulatory work. However, it is an important factor and something we wanted to look at in more detail.

Using the data in our annual monitoring report for 2013, we asked ourselves two questions:

  • Would the picture be different if we looked separately at who was making these reports?
  • If we looked at the firm population in a different way, e.g. according to turnover rather than size, would the pattern of disproportionality be the same?

To provide some context for this report, we have explained how we record and process information which is reported to us and set out some background information about the profile of firms which have been reported to the SRA.

How we record and process information reported to us

We create a record of every allegation of misconduct or other regulatory breach which comes to our attention, which we refer to as a report. These matters may be generated internally or brought to our attention by a variety of external individuals or agencies - which we refer to as 'instigators'.

The reports generated internally (and recorded as having been instigated by the SRA) will include reports against a firm which we have identified for further investigation because they have not complied with certain regulatory requirements. For example, firms which failed to provide annual accountants reports or provided reports which were qualified in 2013 would have been identified and referred to our central risk assessment team. These reports would be recorded against each firm with the SRA entered as the instigator.

Reports are sometimes also recorded as having been instigated by the SRA, even if they arise from information originally provided to the SRA from an external source. This might include instances for example, where our contact centre receives quite general information from a caller who does not wish to pursue their concerns about a firm or solicitor, but which our staff determine should be reported and risk assessed. These reports would be recorded as having been instigated by the contact centre.

So every allegation of misconduct or regulatory breach, whether it is received from an external source or generated internally, is referred to our central Risk Assessment team where it is recorded on our systems and risk assessed. Many of these reports will come direct to the Risk Assessment team via email. If a report comes in to our contact centre or other departments across the organisation, staff will usually direct the matter to the Risk assessment team.

The report may refer to a regulated individual or a regulated firm, or both. Where the report refers to both, we have included these reports in the data as reports against a firm. The majority of reports received in 2013 were recorded against firms and this is not surprising as we have made it clear on our website that we see compliance as being a firm's responsibility.

Only reports identifying a risk above a certain level are now escalated to our Supervision directorate for investigation. When a report is referred for investigation, we open a new file, referred to as a 'conduct matter' and the outcome of that conduct matter will be recorded in due course.

Firms reported to the SRA in 2013

We present information about the total firm population throughout this report and this refers to all 10,432 regulated firms which were open at the end of 2013.

For most of the report, we have broken down the firm population into six different size categories. This allows us to see different patterns emerging for small firms as compared to large firms. Size is determined by the number of regulated individuals working in a firm.

BAME individuals concentrated in smaller firms across the total firm population

The line graph in Figure 1 below shows the ethnicity breakdown of regulated individuals working for firms. This information is provided for the total firm population (the lower black line), the firms which have been reported to the SRA (the middle red line) and the firms which we have decided to investigate (the upper grey line).

Looking at the total firm population, Figure 1 shows that a greater proportion of individuals working in smaller firms come from a BAME background. For example, looking at all firms which have between 2 and 4 regulated individuals, we can see that 24% of the individuals working in these firms are BAME. This is in contrast with all firms which have between 26 and 80 regulated individuals, where the percentage of BAME individuals in such firms is 9%.

The way we measure the ethnicity of a firm is explained in Appendix 1. Tables supporting the graphs in the report are contained in Appendix 2.

Over representation of BAME individuals in the firms reported to the SRA

Figure 1 illustrates that there is a significantly higher proportion of BAME individuals in firms reported to the SRA as compared to the total firm population. This can be seen by the distance between the black line and the red line although the difference gets smaller as the firm size increases. For example, looking at all firms which have between 2 and 4 regulated individuals, in the total firm population, the chart shows that 24% of individuals in these firms are BAME, but for the firms reported to the SRA, this rises to 33%.

Figure 1: Proportion of BAME individuals by firm size

Figure 1: Graph of proportion of BAME individuals by firm size

Although it is not the focus of this report, we have also plotted information about firms which we decided to investigate in 2013, represented by the grey line. These are the cases where we have opened a new conduct matter as described above. This shows a slight increase in the proportion of BAME individuals working in smaller firms, in particular firms of between 2 and 4 regulated individuals and firms between 5 and 10 individuals.

The number and frequency of reports received about firms by size

Small firms make up the majority of the firm population but the larger firms employ a significant number of regulated individuals. For example:

  • There were 7,083 firms with between 1 and 4 regulated individuals open at the end of 2013 - these firms made up 67.9% of the firm population, but only accounted for 13.7% of regulated individuals working for firms at that time;
  • There were 163 firms with over 80 regulated individuals open at the end of 2013 - these firms made up 1.6% of the firm population, but accounted for 43% of regulated individuals working for firms at that time.

To give some further context to the report we have provided some background information in relation to the number of reports received about firms of different sizes. In simple terms, this shows that we get more reports about smaller firms than we do about larger firms, but larger firms have a higher number of average reports per firm. This is perhaps not surprising given that there is a large proportion of regulated individuals working for the larger firms as described above.

Figure 2: Number of firms and reports received

Figure 2: Graph of number of firms and reports received

NB A firm will be counted multiple times if it is reported multiple times, this is because we look at the diversity of the individuals in these firms at the time of the report and this may change from one report to another.

Figure 2 shows a steady increase in the average number of reports as the firm increases in size - shown by the line plotted onto the graph. For example, there was an average of 0.4 reports per firm, for firms with 1 individual, which rises to 4.9 reports per firm, for firms with 81 plus individuals.

To get a better idea of the proportion of firms which are reported to the SRA, the graph in Figure 3 shows the number of firms open at the end of 2013 and the number of these firms which were recorded against a report in 2013.

Figure 3: Number of firms and firms reported

Figure 3: Graph of number of firms and firms reported

NB Any firms which were recorded against a report but were already closed or had closed by the end of the year are not included in this graph.

The percentage of firms within each size category, which received a report during 2013 is shown by the line plotted onto the graph in Figure 3. This increases from 16% of firms with 1 individual, up to 77% of firms with 81 plus individuals. Again this is to be expected due to the large number of individuals working at the larger firms.

Instigators of reports received about firms

We decided to look further at where reports were coming from to see if there were any different patterns for firms of different sizes. We have referred to the different sources of these reports as 'instigators' in this report.

Pearn Kandola also looked at this matter in 2010 when we commissioned them to look further at disproportionality in our regulatory outcomes. They found differences in the reports received for example from the Legal Complaints Service (LCS) which performed a similar role to the Legal Ombudsman at the time. They found that BAME solicitors had a disproportionate number of conduct cases referred to the SRA by the LCS (52% more than would normally be expected).

The LCS closed in October 2010 so we did not follow up this particular finding. The Legal Ombudsman works in quite a different way to the LCS, and we get far fewer reports generated by them. Nevertheless, the Pearn Kandola findings made us aware that there was potential for considerable differences between different instigators.

It can be seen from Figure 4 below that the third largest instigator of reports recorded on our systems is the SRA itself, which represented 16% of all reports received in 2013. This category includes one off reports which may have originally come in to the SRA from an external source, but are redirected to a central team for recording and risk assessment. It also includes firms which we have identified for further investigation because they have not complied with certain regulatory requirements.

Examples of regulatory work which might lead to firms being reported (and recorded as instigated by the SRA) include:

  • firms which fail to provide annual accountants reports or provided reports which are qualified are identified each year and referred to our central risk assessment team. A report would be recorded against each firm with the relevant SRA department entered as the instigator;
  • at the start of the practising year we check that all firms have the required professional indemnity insurance - there might be a number of firms which do not have the required insurance and a report will be created against each firm; or
  • when firms were asked to nominate compliance officers, reports were created against those that failed to do so.

In addition, we will record various calls or emails as SRA instigated reports, if they come in to the organisation via the contact centre or other departments, even if they originally came from external individuals or agencies. This might be the case when an individual might call our contact centre to report a solicitor but the person does not particularly want to pursue this as 'a complaint'. In these circumstances, our contact centre will forward details of the call to the Risk assessment team for recording as a report and for risk assessment.

Without examining each report record, it is not clear which reports were genuinely instigated by the SRA through our regulatory compliance work, and which were brought to our attention originally from an external source but came via an internal department such as the contact centre. When we introduce improved IT systems in 2015, we will consider if we are able to record what prompted these reports more accurately and at that time will review the analysis we have undertaken in this report.

Figure 4 shows the reports received about firms during 2013 broken down by the instigator of the report.

Figure 4: Reports received by instigator

Figure 4: Graph of reports received by instigator

View table

The majority of reports come from members of public (55%) and the solicitors profession (23%). Reports from the profession include self reports from firms.

Reports from other organisations (6%) include reports from a wide range external organisations, including the Legal Ombudsman, government departments and the police.

Figure 5: Average reports per firm by instigator

Figure 5: Graph of average reports per firm by instigator

View table

Figure 5 above shows the average number of reports made about firms by the four main instigators, broken down by firm size. The reports instigated anonymously or by another source represent only a small proportion of the overall reports received (together less than 2% of the total) and have been excluded from the graph to allow us to see the information about the four main instigators more clearly.

In relation to reports instigated by the public and the profession, the pattern is the same as seen in Figure 2 provided earlier in this report - when firm size increases so does the average number of reports per firm. This is to be expected as the larger firms employ more members of the profession and will have a larger client base.

However, this is not consistent across instigator types. The average number of reports per firm instigated by other organisations and by the SRA is more stable across the firm size categories although there is very slight upward trend in large firms.

The flat line for the SRA reports may be explained because SRA instigated reports will often involve one recorded instance of non compliance e.g. failure to obtain professional indemnity insurance, whereas in other areas, the same set of circumstances may generate a number of reports from several different sources all of which will be recorded as separate reports.

Figure 6: Proportion of BAME individuals in firms named in a report by instigator

Figure 6: Graph of proportion of BAME individuals in firms named in a report by instigator

View table

Figure 6 above shows the proportion of BAME individuals in firms reported to the SRA, broken down by the instigator type.

To help identify how the patterns for each instigator type might vary from the norm, we have included a line representing all reports (the black line). The proportion of BAME individuals working in firms according to firm size is shown by the dotted black line. These lines represent the same information shown in Figure 1 above.

Because so many reports come from the public and the profession, the diversity of firms involved in these reports is likely to be similar to the diversity shown by the total population of firms which are reported to the SRA.

There are two instigator types which show a different pattern, the red line which represents reports instigated by the SRA and the grey line which represents firms reported by other organisations.

For reports instigated by the SRA, there is a lower percentage of BAME individuals in firms with one regulated individual, but for firms across the next two categories (2 to 4 and 5 to 10 individuals) there is a higher proportion of BAME individuals.

For reports instigated by other organisations, there is a significantly higher proportion of BAME individuals working for firms across all size categories. Due to the low number of reports by other organisations and the large number of different instigators within this category, further breakdown of the data would not provide us with any reliable results.

Conclusions and actions arising from our work on instigators

There is little difference between the patterns shown by reports which come from the public and the profession. We do need to look further into why there are different patterns shown by reports which are instigated by the SRA and by other organisations.

We have identified a number of actions that we will take following our analysis of the instigator data:

  • We will consider how we can improve our recording and monitoring of reports instigated by the SRA once our new IT systems are in place.
  • Once our new IT systems are in place, we will undertake further analysis of the reports recorded as having been instigated by the SRA and reports instigated by other organisations as these show a higher level of disproportionality than average.

Firm population analysis by annual turnover

Our annual diversity monitoring report looks at the diversity of firms based on their size, where size is measured by the number of regulated individuals who are working at a firm. In the following section we look at the ethnic breakdown of firms according to the recorded annual turnover of the firm and look at how this might vary to the breakdown by firm size.

It is possible to split the turnover groups in a wide range of sizes. We have selected the categories set out in the first column of Table 1 because this produces a significant number of firms in each group and allows us to see a difference in the diversity profiles of the firms in each group.

Table 1: Ethnicity of firms broken down by turnover

Turnover No of Firms % of Firms BAME Individuals White Individuals % BAME in Firms % of Total Individuals
0-20k 1,446 14% 571 6,363 8% 8%
20-100k 1,806 17% 964 1,382 41% 3%
100-250k 2,026 19% 1,088 2,575 30% 4%
250-600k 2,093 20% 1,357 5,203 21% 7%
600k-2m 1,931 19% 1,702 11,434 13% 15%
2-10m 883 8% 1,807 16,217 10% 20%
>10m 247 2% 3,844 35,191 10% 44%
Total 10,432 100% 11,333 78,365 13% 100%

The first row in Table 1 shows there are 1,446 firms with a turnover of £20k or less. These firms include a number of firms which are regulated firms, such as nominee and trustee firms, which are not directly providing legal services. As a result, the firms in this category have been excluded from the following analysis.

Figure 7: Average turnover by firm size and ethnicity

Figure 7: Graph of average turnover by firm size and ethnicity

View table

Figure 7 above shows the average turnover against the firm size. The different coloured data points indicate the proportion of BAME individuals in those firms. This data excludes firms where the turnover is less than 20k or the ethnicity of the individuals in a firm is not known. The graph only goes up to 20 individuals as there are very few larger firms with over 25% BAME individuals.

There is a correlation between the turnover and the number of individuals within the firm, with the average turnover increasing as the number of individuals increases. The average turnover for firms with over 75% BAME individuals is consistently lower than firms with a lower proportion of BAME individuals.

Figure 8: Number of firms and reports received

Figure 8: Graph of number of firms and reports received

Figure 8 summarises the number of firms open at the end of 2013 and the number of reports received about a firm during 2013. Again, a firm will be counted multiple times if it is reported multiple times.

The graph illustrates the distribution of the number of firms and reports by turnover. The calculated average number of reports per firm increases with turnover.

This graph can be compared with Figure 2 which shows the same information but the firms are categorised by size. The patterns seen in Figures 2 and 8 are similar.

Figure 9: Proportion of BAME individuals by turnover

Figure 9: Graph of proportion of BAME individuals by turnover

View table

Figure 9 shows the proportion of BAME individuals in firms at the end of 2013 by turnover group. It also shows the proportion of BAME individuals in the firms named within a report during 2013.

There is a higher proportion of BAME individuals in firms with a lower turnover, The proportion of individuals working in firms with a turnover of between £20k and £100k is over 40%.

Conclusions and actions arising from our work on firm turnover

The previous table and graphs considering turnover indicate that we could use turnover to categorise firms in future analysis. When grouping firms by the number of individuals the first group contains over 30% of the firms. Using turnover would allow us differentiate between these smaller firms where the turnover is lower and the proportion of BAME individuals is higher.

We will publish a breakdown of our firm population by turnover alongside the breakdown of the firm population by the number of regulated individuals in our annual regulatory monitoring report.

Appendix 1: Measuring the ethnicity of a firm

In the past, most of our reporting was based on the outcomes of our regulatory work for individuals. We have adapted our reporting to reflect our increased focus on firm based regulation. Consequently, we have adopted a new approach to measuring the diversity characteristics of firms.

Rather than seeking to assign a particular diversity characteristic to a particular firm (determined by the diversity characteristics of the majority of PC holders in that firm) we now present the diversity profile of a group of firms with reference to the diversity breakdown of all regulated individuals within that group of firms. Regulated individuals include Practising Certificate holders, Registered European Lawyers, Registered Foreign Lawyers and non lawyer managers.

For example, we know that at the end of 2013, there were 3,904 open regulated firms which have between 2 and 4 regulated individuals (which may be a partnership, sole practice or have any other constitution type). In reporting the ethnicity breakdown of these firms we reported that 24% of all the regulated individuals in this group of firms (whose ethnicity was known) were BAME and 76% were White. Throughout the report we refer to this as the proportion of BAME individuals.

When reporting the number of reports received over a calendar year, some firms may have had more than one report made against them over the year. As the profile of a firm's regulated individuals (and indeed its size) may change over time, we have counted each report once, calculating the size and diversity profile of the firm at the time of the report.

Appendix 2: Tables supporting the charts in this report

Figure 4: Reports received by instigator

Instigator No of firms reported % of reports
Public 5,495 55%
Profession 2,271 23%
SRA 1,446 15%
Other organisations 596 6%
Anonymous 131 1%
Other 30 0%
Total 9,969 100%

Figure 5: Average reports per firm by instigator and size

    Number of firms reported and report rate per firm
Firm size No of firms Public Profession SRA Other organisations Anonymous Other
1 3,179 571 (0.18) 268 (0.08) 372 (0.12) 107 (0.03) 15 (0.00) 6 (0.00)
2-4 3,904 1,417 (0.36) 619 (0.16) 574 (0.15) 231 (0.06) 44 (0.01) 9 (0.00)
5-10 1,879 1,176 (0.63) 553 (0.29) 267 (0.14) 130 (0.07) 31 (0.02) 5 (0.00)
11-25 927 1,032 (1.11) 397 (0.43) 129 (0.14) 77 (0.08) 26 (0.03) 3 (0.00)
26-80 380 767 (2.02) 229 (0.60) 65 (0.17) 37 (0.10) 11 (0.03) 4 (0.01)
81+ 163 532 (3.26) 205 (1.26) 39 (0.24) 14 (0.09) 4 (0.02) 3 (0.02)

Figure 6: Proportion of BAME individuals in firms named in a report by instigator

Firm Size Report received firms Public Profession Other organisations SRA Firm population
1 30% 32% 33% 33% 23% 21%
2-4 33% 30% 31% 44% 38% 24%
5-10 24% 23% 23% 34% 28% 17%
11-25 14% 14% 13% 22% 16% 11%
26-80 10% 11% 11% 12% 10% 9%
81+ 10% 9% 10% 15% 12% 10%

Figure 7: Average turnover by firm size and ethnicity

Firm size 0-25% BAME 26-75% BAME 76-100% BAME
1 £148,768   £105,459
2 £306,931 £276,683 £173,803
3 £557,898 £433,194 £276,513
4 £581,295 £595,439 £390,199
5 £767,974 £739,012 £500,956
6 £951,326 £887,428 £507,936
7 £1,004,052 £1,006,633 £649,954
8 £1,178,822 £1,295,852 £803,786
9 £1,388,075 £1,208,209 £879,214
10 £1,728,080 £1,196,326 £1,210,456
11 £2,171,478 £2,319,937 £1,330,162
12 £2,036,995 £1,989,885 £1,065,871
13 £1,970,188 £1,348,089 £1,215,917
14 £2,313,674 £2,086,318 £2,035,197
15 £2,174,691 £2,065,759 £1,725,642
16 £2,761,890 £2,802,018 £1,179,773
17 £2,764,908 £4,943,573 £1,567,913
18 £2,919,150 £5,659,651 £5,189,205
19 £3,363,174 £1,919,812 £2,998,761
20 £3,425,609 £2,561,020 £1,638,045

Figure 9: Proportion of BAME individuals by turnover

  Firm population 2013 Report received firms
20-100k 41% 52%
100-250k 30% 50%
250-600k 21% 33%
600k-2m 13% 20%
2-10m 10% 12%
>10m 10% 10%