Hidden Risks

We met on Wednesday 15th March for another weekly Compliance for Law Firms session with Steve Brett and Kate Burt , and Karen Eckstein, Solicitor and Risk Management Expert talking about "Hidden Risks".

Karen has been dealing with tax related claims for the last 30 years. 80-85% of claims result from getting the basics wrong, such as not meeting deadlines, issuing shares incorrectly, and not properly scoping the work.

?Hidden risks are by their very nature easy to overlook. There is a problem, but have you identified the cause? Have you just treated the symptoms? Most people assume that because a particular fee earner has left, the problem has been resolved and do not address the underlying process issue that led to the problem.

So it's important to conduct a thorough risk assessment and analysis to identify hidden risks – looking at both what might theoretically go wrong but also what has happened in the past in your firm and elsewhere. In this process, potential risks are identified, their likelihood and impact are evaluated, and strategies are developed to mitigate or manage them. Your risk management plan must also be reviewed and updated regularly so that it remains effective. If you are compliant, you will have eliminated or minimised a substantial element of risk within your organisation.

Compliance risks and hidden risks can be dealt with in four ways: Terminate, Treat, Transfer, and Tolerate. Treatment of a risk is not viable because fees can be incurred, so risk management is used to minimise the risk. However, it is imperative to be aware of what the risk is and how hidden risks can occur so that you can run your business.

These risks can lead to missed deadlines, poor diary systems, and inadequate processes. It is important to be aware of the potential for someone to pick up a file and know what is going on, as well as the emails that were sent to the system.

The risks of remote working must be considered when drafting engagement letters and meeting notes, especially following COVID. In addition, there is the risk of physical notes not being taken during the meeting or having the meeting abandoned without any recording of it.

In addition, there are historical issues like the introduction of tax schemes, failure to meet deadlines in personal injury cases, errors in SDLT calculations, and non-compliance with conveyancing rules.

An example case was examined during the session, in which the problem was caused by a lack of robustness in the firm's processes. As we saw in this case, the law firm investigated and found multiple failures on the part of the Partner of the firm because of the lack of processes and training, and after identifying these risks, the firm was able to address them.

Recognising and valuing the underlying cause is crucial to preventing any future losses. A family of impacted files is identified using risk methodologies, and their actual value is determined. All aspects of the risk family can be factorised, including the fact matrix, quantum causation limit, and factorisations of various issues. To aid in this process, reports can be generated.

It is imperative, to identify and manage hidden risks because they may cause harm to individuals or organisations. It is possible to reduce or prevent the impact of these risks by identifying and addressing them, thereby making the environment safer and more secure.

The above shows that as well as having robust processes in place, it is essential that staff receive the right type of training and that staff understand the firm’s approach to risk management and why it matters. Then the compliance processes are more likely to be taken seriously and followed with people suggesting improvements that will positively impact risk. E3 Compliance Training has made this step easier for its clients by tailoring the training to the firms' specific needs. Talk to the team at E3 Compliance Training at [email protected] or directly to Steve Brett if you would like more information about bespoke training or advice on remaining compliant.