The Risk & Compliance function in a law firm exists to mitigate risks and maintain compliance with necessary regulations and legislation.
We tend to think of the Risk & Compliance function in law firms as being made up, broadly speaking, of four main areas:
- Conflicts of interest
- Anti-money laundering
- General regulatory Risk & Compliance
- Claims, complaints and professional indemnity matters
The Law Firm Risk & Compliance space is a broad area that is growing and expanding quickly. New legislation is being created and regulations are being amended all the time, so there’s always something new to learn.
This is an exciting and ever-changing function in a law firm and an efficient, proactive, and effective team is becoming ever more crucial.
Conflicts of Interest
The role of a solicitor is always to work in the best interests of your client, but there are many ways a conflict of interest can arise.
The Solicitors Regulation Authority (The SRA) has created a code of conduct for solicitors in England and Wales, which sets out the rules for legal conflicts issues. Of course, there are different codes governing different jurisdictions around the world, which can make international matters extremely complex.
The goal of the Risk & Compliance team is to anticipate these conflicts before they arise and propose strategies to work around these conflicts of interest issues. If this is not possible, then it will be their job to manage the conversation when matters can’t be taken on.
The role of a conflicts professional can involve having these difficult conversations with senior fee-earners who may, understandably, be keen to carry out the work. For this sort of work, professionals will need confidence, tact, diplomacy, and resilience.
Anti-Money Laundering & Client Due Diligence
It is absolutely vital to know exactly who your client is and where their money is coming from to avoid inadvertently facilitating money laundering and supporting organised crime.
Although this may sound fairly straightforward if you are representing an individual, law firms often work with intricately structured businesses, companies, and other entities, which can make this task very complex.
The AML (anti-money laundering) professional on the Risk & Compliance team must consider the question: “Who is actually benefiting from the services of the fee-earner?”
If you are working for Company X, you must understand who actually owns Company X to really know whom the work is benefiting. You must undertake in-depth research and analysis of the corporate and financial structure of your client’s business, and all beneficiaries of that business.
Once you have established exactly who the firm’s work is ultimately for, you must consider if there are any risk issues involved with working for them. This may involve checking if there could be a potential breach of Sanctions caused by taking on the work, or if there are any Politically Exposed Persons involved in the matter giving rise to potential reputational risk issues.
This is a very complex area of Risk & Compliance, which often involves extensive research and analysis, but it is key to preventing money laundering and fighting organised crime.
General Risk & Compliance
It is the job of the Risk & Compliance function to know the rules, regulations, and legislation that apply to the law firm and ensure they are being followed. They must develop and implement processes for compliance with these rules, including delivering training to the fee earners and the wider business.
Regulations are ever-changing, so the team must keep up to date with all new and amended rules and ensure the firm is in compliance. This applies to all jurisdictions in which the firm operates, so it can become very complex, very quickly!
Examples of regulations that law firm risk and compliance functions have had to deal with in recent years include:
It may be necessary to undertake internal audits and/or gap analyses to determine to what extent the firm is compliant with all the relevant regulations. This will help the Risk & Compliance team to understand where the firm is failing to meet the required standards, and what can be done to bring their policies and procedures up to date in order to be fully compliant.
The Risk & Compliance team will also be required to review the contracts the firm enters into. These may include the letters of engagement sent to clients and third-party supplier contracts. These documents and their terms can have a significant impact on the level of risk the firm is being exposed to, and they will be assessed regarding the level of liability the firm is being expected to take on under the terms of the contract, the scope of the work to be carried out, and more general legal and commercial risks.
Claims & Complaints
When something slips through the net and a mistake is made, the Risk & Compliance team will be involved in managing the fallout. Even after taking every precaution and following all the rules, it’s hard to rule out complaints and claims against the firm completely.
Lawyers are human too, and mistakes will happen, no matter how hard you try to avoid them!
The Risk & Compliance team will attempt to prevent a complaint from escalating into a claim and court proceedings being filed against the firm. An investigation into the issue will take place, and if necessary, outside counsel will be instructed to defend the firm.
It may also be the case that the firm may need to take action against a client who has not paid their bill or caused other issues for the firm.
Avoiding claims against the firm is key, as a poor claims record can impact the cost of Professional Indemnity Insurance. Any claims that do arise must be dealt with effectively, and lessons must be learned quickly in order to be proactive to prevent further issues.
Reducing the cost of insurance premiums is a fantastic way to swiftly show a tangible benefit of the Risk & Compliance function on paper. It can be hard to define the results of this space, as avoiding fines for non-compliance, for example, can be hard to demonstrate. Cold, hard financial savings, however, could be key to securing buy-in from the partnership.
Risk & Compliance Education
If you’re interested in working in Law Firm Risk & Compliance, The International Compliance Association (The ICA) is a great place to start. They offer professionally recognised qualifications, a membership, and bite-size essentials workshops. Their website is a great hub for keeping up to date with compliance. We have even teamed up with the ICA to offer you a discount, just use code AJFOX10 for a discount on any of their courses.
AJ Fox Compliance are the only recruitment agency who specialise solely in Law Firm Risk & Compliance, so are ideally placed to help you plan a career, progress, and succeed in this rewarding and ever-growing space.