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Centralising compliance can lead to new risks

Partners may not be aware of who they are really acting for, say compliance managers

18 May 2015

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By Manju Manglani, Editor (@ManjuManglani)

Partners are not taking enough responsibility for managing the full range of risks affecting their law firms, senior risk and compliance managers have said.

Speaking at Managing Partner's Senior Risk and Compliance Forum, delegates said that partners need to engage more with managing conflicts of interest.

One way to ensure conflicts are managed ethically and the interests of all parties are protected is to have the role devolved to an independent person within the firm.

"You should have a separate person in the firm managing conflicts so that it keeps them honest," said consultant Sarah Mumford.

However, doing so may lead to other difficulties. Delegates noted that one of the challenges they face is that, by having a dedicated compliance function, partners sometimes take the view that risk management is no longer within their remit.

"There is a risk of taking too much away from fee earners. Risk is everyone's responsibility - take too much away and it becomes an administrative function that they don't have to deal with," commented a compliance manager from the floor.

"Say 'we're here to help, but it's your responsibility'. Don't centralise risk ownership."

Partners may engage more with risk and compliance if it is built into the firm's remuneration and reward system.

"At bonus time, we use buy-in to the risk and compliance system as a metric, not just billable hours," commented a delegate from an international law firm.

Another delegate asked the floor: "Are you happy that risk, compliance and ethics are suitably built into partner appraisals? Can we have a show of hands?"

Only a handful of people raised their hands in a room of about 40 senior risk and compliance professionals.

Knowing your client

A significant challenge facing large law firms is being aware of any changes within an organisational group that may affect who the firm is really representing.

"The biggest risk is knowing who you're actually acting for," commented one delegate.

File reviews can help with this process, but these need to be conducted regularly if they are to be more than just tick-box exercises.

"File reviews of larger matters are useless unless you do them regularly - a single file review won't pick up on a new large interested party," noted Rachel Khiara, partner at Khiara Law.

Engaging partners with file reviews can be a useful way of highlighting the importance of continual monitoring.

"Get fee earners to personally do a file review for one of their key clients, but for work from a different practice group, and give them an abbreviated file review checklist to use," suggested Mumford.

"Often, they are horrified at the results and it gives them a good sense of how their client is being treated in different parts of the firm."

Systems and processes

Law firm managers have their work cut out for them when it comes to ensuring they are on top of risk and compliance.

Benchmarking the firm's approach against that of competitors can be a useful way to ensure it is following current best practice.

"Benchmarking is important," commented Khiara.

"Take the good points from other firms and use them to create your own system. There isn't a perfect system that's perfect for everyone."

Asked a compliance manager from the floor: "Does anyone think they have the best system in place for managing conflicts of interest? Can we have a show of hands?"

A pause following, during which no hands were raised. People laughed uncomfortably.

"So, each of us just has a system in place," he concluded.




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Risk & Compliance