Posted by Karen Edwards, head of professional development at Legal Futures Associate ILFM [1]
Risk management is an essential part of any law firm’s strategy. In an increasingly complex and tightly regulated environment, it is not just a matter of avoiding risks entirely but having policies, controls and procedures in place that can anticipate, identify and mitigate potential challenges before they escalate.
From reactive to proactive risk management
Traditional risk management approaches typically focused on responding to incidents after they have occurred. Best practice today demands a more forward-thinking approach.
Proactive risk management enables law firms to shift their perspective on risk, from a potential threat to more of a strategic opportunity for better performance and increasing client confidence.
Practical tips
The first step in implementing a more proactive approach to risk management is to undertake a comprehensive review and identification of risks likely to pose a threat to a firm in the near future. Firms should then consider:
- Conducting regular, systematic risk audits across all firm operations;
- Developing an ongoing risk register that captures potential legal, financial, operational, technological, and reputational risks;
- Implementing cross-departmental risk assessment workshops; and
- Encouraging a culture of transparent risk reporting.
Use of technology
The continuing expansion of technology has brought with it both risks and rewards for those who use it carefully. When it comes to technology helping with monitoring and reducing risk law firms can:
- Consider investing in integrated risk management software that provides real-time monitoring and reporting;
- Implement strong cybersecurity systems;
- Develop secure document management systems with access controls;
- Utilise AI-powered analytics for predictive risk identification;
- Implement regular staff training on digital security;
- Develop business continuity and disaster recovery plans;
- Create clear policies for remote working and device usage; and
- Establish strict data protection and privacy frameworks.
The role of the COFA and COLP
Compliance is key when it comes to reducing risk and a law firm’s COFA and COLP should ensure they oversee:
- Any terms and conditions under which the firm is authorised by the SRA to provide legal services;
- Compliance with the SRA regulatory arrangements, including the Standards & Regulations 2019 and the accounts rules;
- Development of comprehensive compliance monitoring, recording and reporting systems;
- Clear, accessible compliance documentation; and
- Regular internal and external compliance audits.
(More detailed guidance for COFAs can be found in our recent article [2].)
Client-related risk
Firms should be aware of the risks associated with clients and ensure they have well-communicated and documented procedures covering:
- Standardised client onboarding risk assessments;
- Enhanced due diligence processes for high-risk clients or matters;
- Clear methods of conflict of interest screening; and
- Transparent client acceptance/rejection criteria.
Financial risk mitigation
Finance and accounting is an area where risks can quickly develop into having a serious impact on reputation and even result in SRA-imposed fines/sanctions. Firms should ensure they:
- Implement robust financial control systems;
- Create transparent billing and time-recording practices;
- Establish comprehensive financial reporting mechanisms; and
- Maintain rigorous client account management protocols.
Creating a culture of risk management
Firms that are able to create a culture of risk management, and incorporate it into daily routines and processes, are likely to find it is easier to stay ahead of any developing risks.
Ideally, the firm’s leadership team will visibly champion risk management principles and encourage an open culture of ‘speaking up’.
Regular training should be provided to employees at all levels and risk management sections can be included in appraisals and performance reviews.
Continuous improvement
Risks are ever evolving and, in order to stay responsive to emerging risks, firms should view proactive risk management as an ongoing task.
They should consider setting up a dedicated risk management committee, conducting regular risk assessments and review sessions, and keeping abreast of industry best practice.
Effective risk management understands that it is impossible to eliminate all risks, but that by developing resilience to navigate uncertain environments confidently, and by developing a proactive, strategic approach, firms will put themselves in the strongest possible position to deal with risks as and when they occur.