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Building a firm foundation

Building a firm foundation


Firm leaders need to understand the link between financial management and compliance, and be prepared to turn to experts when in need, urges Eric Fletcher

I have a lot of sympathy for those who have taken on the role of COLP, COFA, MLRO, or complaints partner, and are desperately trying to persuade the rest of the firm that compliance is important without coming across as someone who fetters enterprise. It can be a real struggle.

The problem with these roles when in house is that you can become part of the problem due to your relationships with colleagues. Working as a consultant and going into a firm, it can be easier to be objective and persuasive to make changes than when you are part of the fixtures and fittings.

And yet I still find some doors are hard to open because the fixtures and fittings are just that: fixed. All too often those blocking change and improvement are the very people who should be embracing it, as they have the most to lose.

There is a link between financial management, compliance, and crisis. When things go wrong on the first two, you end up with the potential for the third. There can face regulatory action, you may not get professional indemnity cover, you may lose clients, staff, partners, the firm – the list goes on.

I often ask in meetings with a firm’s owners and managers whether we can sit around to have a debate about compliance, not taking action and waiting for something to go wrong. The reason I ask is that when things do go wrong, they can – and often will – mean the end of a career or a firm. I have seen it too many times now.

Inadequate systems

A common denominator in many of the horror stories I have seen is people. The partner or fee earner who pushes through transactions that should not be allowed usually does so in the knowledge that they can because the cashier or practice manager and their colleagues will allow it, or that there are inadequate systems, controls, and training in place for those transactions to be discovered.

The individual motives of those undertaking the transactions may differ, but the end results for the firm are always far from ideal. When this happens, if the firm does not close its doors, what happens to all those who allowed the transactions, if you know the full list? How easy is it to deal with that issue when the regulator perhaps did not? Do you do the same as before: nothing? On top of these decisions, you then have to think of the cost implications of remedial actions and change. Then you have to work out how and when to do it.

Expert advice

Compliance does have a cost, but so does non-compliance. Firms cannot take a bean-counting approach to determining which costs more: when it comes to crisis time, the cost of the turmoil and stress is unquantifiable.

Even then, for whatever reason, some firms leave it late in the day before they bring in external expert help. Again, the motives are varied for this delay, but, based on experience, if you did not get it right in the first place it may be sensible to ask someone else for help at the earliest opportunity. If you do, then make sure they understand that linkage between between financial management, the Solicitors Regulation Authority’s Accounts Rules, the Handbook, compliance, and crisis.

I mention this because the SRA Risk Outlook consistently includes protecting client money and money laundering. Then I think of those I know or have come across in senior positions and recall their expertise (or otherwise) in accounting matters. I have been staggered over the years by the individuals who talk about money laundering but have never seen how an accounting system really works. How much money laundering goes on without accounting entries? How many times have client funds gone missing without an accounting entry or two?

Without compliance, you can have the fastest growing department or firm there is, but you are just building a potential problem. It is like building a house without getting the foundations in correctly. It may take a while for the day to arrive when things go wrong, but that day will come. So your firm’s approach to compliance needs to be as good as you can get it.

Eric Fletcher is a financial and compliance consultant at Symphony Legal