Adopting a holistic approach

It is important to accept that risk management does not relate solely to operational risk issues and insurance, that is to say, the risk attached to carrying out the client's work and trying to get cheaper insurance. While in themselves these are important objectives, there is much more to consider.


There are risks attached to all areas of the business for a legal practice. The word business is used advisedly. Sir David Clementi makes the point in his report last year that 'research shows that complaints arise as much from poor business service as from poor legal advice. If certain lawyers continue to reject the notion that they are in a business, such complaints will continue until they are indeed out of business'.


This is a point that legal risk managers have been labouring for some while. Generally, the quality of legal advice is good; it is the service delivery of that advice to the client that is suspect and the cause of many complaints and claims.


Therefore, solicitors must identify the risks that their businesses face to manage them effectively. Broadly, the risk areas are:


  • Strategic: the risks attached to a business decision that may affect the profitability of a firm - recruitment, mergers, and acquisitions, for example.



  • Operational: the risk attached to the day-to-day work undertaken by a solicitor.



  • Disaster: how many firms actually have a business interruption/disaster recovery plan in place? And for those that do, when was it last tested, reviewed and updated? Are the staff aware of what they should do in the event of being unable to access the office?



  • Statutory: for example, the Data Protection Act 1998 - does the firm know and understand what its obligations are? Is the firm compliant with those obligations? Is the firm aware of its other statutory obligations?



  • Compliance and regulation: an obvious area in terms of compliance is the risk attached to non-compliance with a solicitor's professional obligations. It is worrying just how little solicitors know about their professional obligations and how they impact on their business. Just look at the extent of non-compliance with practice rule 15.



  • Regulatory: such as the money laundering regulations. There were high levels of awareness when they were introduced, but what of the level of compliance since then as solicitors have become more familiar with the regulations? How are firms monitoring compliance? Is there appropriate evidence of identity and, where necessary, residence being obtained at the appropriate time in respect of all new clients?



    • Change is on its way. There will be a 'shift towards regulation of the economic unit and away from regulation of the individual lawyers', according to Sir David if his review's recommendations are adopted. Firms need to identify their risk profiles and manage them through their internal processes. Those that have started down this road will find change far easier to manage than those insistent on resisting change, however futile that may be.


    This column was prepared by AFP Consulting, a division of Alexander Forbes Risk Services UK