Monday, May 6, 2013

An Integrated Approach to Risk Management and SRA compliance

The solicitors' profession has undergone a sea change in culture over the last 10 years. In particular there seems to be are ever increasing statutory, regulatory, compliance and risk creep which,for many firms, verges on being suffocating. At the same time solicitors have been forced to become more commercial and the business world has become more competitive with fewer firms have retaining a lock step structure. The resultant change of ethos has caused partners to become far more entrepreneurial and much less averse to risk.

Traditionally, the industry has viewed compliance and risk management (the latter previously known as ‘best practice’)  as two separate areas typically managing them in a silo'd fashion.

Over the next few years COLPS and COFAs will come to understand that better integration of risk management and compliance is the direction they must take to survive. This view recognizes the need to rectify firm-wide weaknesses that lead to significant operational risk, losses, or regulatory censure or fines. A key challenge, however, is how to bridge specific areas of risk and compliance into a unified and firm-wide approach.

This article outlines ideas to help optimize a firm’s approach to risk and compliance management by leveraging the synergies and return on investment (ROI) that can be gained from addressing both in tandem

Taking an integrated approach a firm can get the most “bang for its buck”.

The following key benefits exist when taking a more integrated approach to compliance and risk

  • Understand the full risk management and compliance profile of your firm and the lawyers working for you.
  • An integrated approach to compliance and risk provides a more holistic view across departments or areas of law. It creates an extra “layer” to review high-risk clients.
  • Creates a culture whereby all the lawyers within a firm have an appreciation of and contribute towards compliance and risk management.
  • Manage and monitor breaches, track remedial action to minimize your exposure to professional indemnity. Generate comprehensive reports as required by the SRA.

Law firms may feel the proverbial noose closing in around it’s neck but an investment in managing risk and compliance, whether or not it be in terms of time or technology or both has to made. Doing nothing is not a viable option. Without sophisticated technology usually reserved for larger firms, it is hard to produce quantitative and objective evidence of compliance and risk management ; Success is hard to measure.

Low-cost  on-line ‘compliance  management’ systems such as CLIENTCAREmonitor (CCM) are starting to emerge. CCM was designed to assist small- to medium-sized firms meet their compliance requirements under the OFR. The system can integrate with case management systems, is simple to use, and is highly effective. CLIENTCAREmonitor's matter-level compliance and risk management is designed to be used by every fee-earner at a firm, on every transaction.

During the client take-on and file closure phases of a legal matter, the lawyer performs CCM’s compliance assessment checklist. The checklist is presented as a simple one-page screen with multiple-choice questions that takes two to three minutes to complete. An instant risk classification, based primarily on the SRA’s scoring metric, is then produced and the COLP or COFA  is immediately alerted to the risks via their dashboard.  

Rationalizing the use of client take on data and file closure data  can result in effective watch lists and Risk Assessment Mechanisms. The integration of this data can be used as evidence to support reporting or non-reporting and can developed over time. In the area of risk and compliance, the objective is to detect (or even prevent) breaches and risks as early as possible to mitigate losses and reduce their impact on clients.

Law firms will continue to be called upon to do more with less. Especially in relation to regulatory compliance, but even more relevant within risk management, where return on investment and impact to the bottom line can be directly calculated. Coupled with an increased incidence of fraud and money laundering schemes and more opportunity to register complaint’s with 3rd parties, the result is a clear necessity to upgrade systems, streamline processes and improve efficiencies. Additionally, as we continue through a time of upheaval and reduced earnings within the legal services industry, lawyers must be even more focused on customer care and retention. A reputation for strong compliance, security and risk management becomes a competitive USP and helps breed confidence with your PI insurer and those who may be interested in investing, merging or buying your business.

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