Risk management for law firms

The Money Laundering Regulations 2003 have just come into force (March 2004), requiring law firms to comply unless they wish to risk prosecution, fines and, most worryingly, irreparable damage to their reputation.

While some firms were subject to existing controls, the new regulations have been extended to solicitors acting in financial or real property transactions, or who provide services in relation to the formation, operation or management of a trust; quite simply, few firms are now exempt. And, with legal businesses continuing to expand on an international level, solicitors will inevitably face a number of clients who have engaged in illegal financial dealings.

They must ensure adequate client-checking procedures are followed, disclosing suspicions accordingly. It may sound obvious, but the procedures and rules are complex, with only 22 per cent of UK companies confident that they are now fully compliant.

In this month’s issue, the money-laundering regulations are a common theme, with the prevailing advice suggesting that firms should take a risk-management approach that establishes firm-wide procedures of internal control and communication. Frank Maher, a partner at Legal Risk, argues that firms should be particularly wary of a ‘tick box’ approach to client-identity checks and ensure that they are prepared for the wider risk of money-laundering offences, the implications of which are easily overlooked.

While money laundering is a timely topic, it is just part of a changing regulatory landscape for law firms. In a profession that has enjoyed self-regulation, compliance has rarely appeared high on a firm’s list of priorities to the extent that regulatory requirements have often been ignored. Sir David Clementi’s consultation paper, however, looks set to change the status quo, with reform looking to cover five functions: entry standards and training; rule making; monitoring and enforcement; complaints; and discipline. Regulatory models proposed by the consultation paper have made law firms wary, particularly in regard to a single Legal Services Authority of the same ilk as the FSA. We will have to wait and see whether their justifiable concerns will be heard or seen as self-serving, but one thing is certain – the profession is changing and firms must put in place the necessary infrastructure to manage the far-reaching impact of this shift.

With firms having to look at their internal procedures like never before, Ark Group’s June conference on financial management for law firms (28-29 June) should prove a useful aid to firms that have for too long neglected the importance of their finance directors. With presentations covering everything from innovative pricing models to partner performance and remuneration, the conference puts the finance department at the heart of the process that makes a firm profitable, and, in the context of this issue, makes it crucial to meeting the demands of this new regulatory market. If you would like to receive further details of the conference, please e-mail my colleague James Renton at jrenton@ark-group.com.

Caroline Poynton
Editor

Features

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Regulars

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