Risk Management in Law Firms

Mitigate Risk and Enhance Firm Success

By (author) William Glynn, Niya Phiri, Alexia Howard, Simon Konsta, Nigel Miller, Simon Chester, Sandy Gill, Anousheh Bromfield, Charles Kuhn, Brian Rogers, Rebecca Atkinson, Frank Maher, Peter Noyce, Noah Fiedler, Tracey Calvert, Jamie Butler, Ruth Bonino, Chris Holme, Jessica Clay, Iain Miller, Lucinda Soon, Jonathon Bray Edited by Katerina Menhennet

Publication date:

17 October 2022

Length of book:

195 pages

Publisher

Globe Law and Business

Effective risk management in law firms has never been more important. Lawyers must contend with the long-standing risks associated with the practice of law, such as anti-money laundering and issues of client confidentiality, as well as new risk areas such as data protection and cybersecurity, and increased regulatory burdens. Poor handling of these risks can lead to reputational damage, diminished client relationships, and even regulatory action, and so it is critical for law firms to remain vigilant and put in place robust risk management policies, processes and systems. Risk Management in Law Firms brings together lawyers, consultants and other risk and compliance professionals to provide expert and practical guidance on essential risk management topics. Chapters cover risks relating to clients, internal operations and law and regulation, and address recent developments including issues arising from the shift to hybrid working, the increased focus on ESG and climate change, and the extended influence of clients through outside counsel guidelines. There is also consideration of the future of risk management with coverage of the proposed changes to the SRA Codes of Conduct to address issues relating to wellbeing and unfair treatment at work, and the commercial opportunities for law firms and individual lawyers presented by the increasingly flexible principles-based regulation. This title aims to help law firm leaders and individual lawyers understand and prepare for the risks they face – as well effectively handle them when issues do arise – whether they occur in the firm’s internal operations or its dealings with clients. In-house counsel and others will also find it useful to understand their law firm colleagues better, enhancing professional relationships. With the comprehensive coverage of key risk areas in this title, lawyers and firms can not only ensure compliance, but also maintain healthy client relationships, educated staff, a positive reputation, and continued success and growth.

Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix About the authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii Chapter 1: Managing risks in the hybrid “office” By William Glynn, legal director, and Niya Phiri, partner, Clyde & Co LLP Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 People risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Operational risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Data/IT risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Legal/regulatory risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Chapter 2: Climate change and ESG risks for lawyers By Alexia Howard, senior associate, and Simon Konsta, partner, Clyde & Co LLP Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 What is ESG? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Reputational risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Transition and transactional risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Corporate disclosure and liability risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Greenwashing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Diversity and inclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Chapter 3: Data protection By Nigel Miller, founding partner, Fox Williams LLP Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Data protection principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Lawful ground for processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Accountability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Data processors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Individual rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Personal data breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 International data transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Marketing and cookies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Chapter 4: Cybersecurity: an existential risk for law firms By Simon Chester, counsel, conflicts and regulatory matters, and Sandy Gill, assistant general counsel, Gowling WLG (Canada) LLP Regulatory requirements............................................... 45 Client pressures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Cloud computing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Remote working . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Policies and procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Insider risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Assessing precautions.................................................. 52 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Planning for breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Next steps.............................................................. 58 Chapter 5: Criminal finances and investigations By Anousheh Bromfield, senior associate, and Charles Kuhn, partner, Clyde & Co LLP Introduction and types of financial crime . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Investigations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Specific considerations for certain offences in law firms – (section 330 POCA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Chapter 6: Anti-money laundering – are you doing enough to protect your firm? By Brian Rogers, regulatory director, The Access Group The money laundering landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Law firm sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 SRA AML thematic reviews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 AML guidance.......................................................... 75 AML governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Firm (practice)-wide risk assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Client/matter level risk assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 AML policies, controls, and procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Chapter 7: Professional indemnity insurance By Rebecca Atkinson, director of risk and compliance, Howard Kennedy The requirement to have professional indemnity insurance . . . . . . . . . . . 81 How much insurance cover to buy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 What a circumstance is, when and how to notify possible claims to insurers, and who will handle the claim . . . . . . . . . . . . . . . . . . . . . . 83 Should you rectify mistakes? Beware own interest conflict . . . . . . . . . . . . 85 PI insurance renewal – what happens each year and top tips for renewal: how to present your firm well . . . . . . . . . . . . . . . . . . . . . . . . . 86 Possible PI insurance exclusions for sanctioned entities and certain types of work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 A short note about cybercrime insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Limiting liability clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Chapter 8: Protecting partner assets By Frank Maher, partner, Legal Risk LLP Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Professional indemnity insurance and the exclusions . . . . . . . . . . . . . . . . . . 92 Retirement and professional indemnity insurance . . . . . . . . . . . . . . . . . . . . . 95 Defensive practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Insurance options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Chapter 9: SRA compliance By Rebecca Atkinson, director of risk and compliance, Howard Kennedy What is the SRA and when do you need to be authorized by it? . . . . . . . 101 How to get authorized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 The annual reauthorization process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 The SRA Standards and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 SRA Enforcement Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 The COLP and COFA role and reporting requirements . . . . . . . . . . . . . . . . . 113 Ethics and how to approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 SRA warning notices and guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Chapter 10: Mitigating risk through your client journeys and practices By Peter Noyce, head of legal sector, Menzies LLP Take on process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Throughout the transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 Completion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 Financial disciplines and controls should also be part of the toolkit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 Chapter 11: Outside counsel guidelines By Noah Fiedler, shareholder and co-leader of the Attorney Risk Management Practice Group, Barron & Newburger, P.C. Comprehensive outside counsel guidelines become standard . . . . . . . . . 125 Indemnity provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 Defining conflicts of interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 Managing the risk of OCGs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 OCGs are here to stay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 Chapter 12: Conflicts of interest and confidentiality duties – effective risk management By Tracey Calvert, founder and director, Oakalls Consultancy Limited Own interest conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 Conflicts of interests when acting for clients . . . . . . . . . . . . . . . . . . . . . . . . . . 134 Confidentiality and disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 Risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 Risk compliance objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 Risk management pinch points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 Compliance solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 The bigger picture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141 Chapter 13: Complaints By Rebecca Atkinson, director of risk and compliance, Howard Kennedy The requirements regarding complaints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 What should the complaints handling process be and who should undertake complaint handling in the firm? . . . . . . . . . . . . . . . 144 How to effectively handle complaints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 Complaints made by non-clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 How to handle online reviews – good or bad . . . . . . . . . . . . . . . . . . . . . . . . . . 149 The Legal Ombudsman Scheme Rules, publication, and case fee . . . . . 150 Further guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 Chapter 14: Effective supervision in remote and hybrid teams By Jamie Butler, executive coach and facilitator and founder, Jamie Butler Coaching Limited Why is good supervision important? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 Risks, challenges, and opportunities of remote supervision . . . . . . . . . . . . 156 Core skills and characteristics of an effective remote supervisor . . . . . . 156 Setting “ground rules” to establish responsibility and build trust . . . . . . 157 Communicating for effectiveness and productivity . . . . . . . . . . . . . . . . . . . 158 Maximizing engagement, inclusion, and wellbeing . . . . . . . . . . . . . . . . . . . . 158 Hybrid working – developing approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160 Hybrid working and supervision – opportunities and challenges . . . . . . 161 “Supervisor as coach” skills – managing from a distance . . . . . . . . . . . . . . 162 Chapter 15: Lateral hiring in law firms – risks and reward By Ruth Bonino, professional support lawyer, and Chris Holme, partner, Clyde & Co LLP Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 Basic legal, ethical, and regulatory obligations of partners in UK law firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 Setting the scene . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 The due diligence process – how to avoid overstepping the mark . . . . . 168 Pre-employment vetting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 Conflict checks – how to avoid breaching confidentiality obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 Integration issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 Key rules of the road . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 Chapter 16: Culture matters – a new era for law firm risk management By Jessica Clay, partner, Iain Miller, partner, and Lucinda Soon, professional support lawyer, Kingsley Napley Ethical culture under the spotlight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 Assessments of unfair treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 Concurrent employment claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178 Challenging behavior that does not meet the standard . . . . . . . . . . . . . . . 179 Personal and professional boundaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181 Chapter 17: Innovation and the opportunities in flexible regulation By Jonathon Bray, director, Jonathon Bray Limited Regulation-led innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 CMA report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186 Deregulation-led innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 Other external factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189 Ten years of ABSs – evolution rather than revolution? . . . . . . . . . . . . . . . . . 190 Innovation is easier said than done.................................... 192 About Globe Law and Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195