Risk Management for Law Firms
Lawyers by definition understand the law (or more specifically the area of law in which they practice) but what about the laws and regulations which directly affect their practice as a lawyer, and the operation of their law firms as a business? There are many legal obligations and regulatory obligations which impact a lawyer, and a law firm. Most lawyers have a good understanding of their broad legal and regularly obligations but may not have an in-depth understanding of the risks associated with those obligations, and risk management strategies.
The major source of legal obligations for a lawyer and a law firm is the Uniform Law and its associated secondary legislation. Other sources include taxation and superannuation laws, workplace health and safety laws, employment laws, and the Australian Consumer Law. If the law firm is an Incorporated Legal Practice then obligations arise from the Corporations Act for both the company and the directors. In the future legal obligations may include those arising from the Anti-Money Laundering & Counter-Terrorism Financing Act. Also, obligations may arise in a discrete area of legal practice, for example, Verification Of Identity for those involved in the conveyancing.
The major sources of regulatory obligations are the Australian Solicitors Conduct Rules and lawyers general ethical obligations, and regulatory guidance and principles issued by the Victorian Legal Services Board/Commissioner and/or The Legal Services Council. Obligations arising under contract of insurance (Legal Practitioners Liability Committee professional indemnity insurance, and other business insurances) are also important.
How To Identify Legal and Regulatory Risks
It should not be difficult for lawyers to identify all the legal and regulatory obligations which affect them, or their firms, as this is part of legal training. However, the reality being that while most lawyers and law firms have a good understanding of major legal and regulatory obligations under the Uniform Law their understanding of other obligations affecting them or their firm is somewhat lacking.
The most effective way to understand, and then assess the risks, of obligations is to identify, then place, all the obligations into an Obligations Register. A spreadsheet works well. Initially, this is a time-consuming exercise. Once the Obligations Register has been completed it should be a relatively straightforward task to ensure that it is up-to-date by amending it when legislation and regulations are changed.
Partners and/or directors should undertake a risk assessment process to assess the risk to their personal practices, and their firms, arising from legal and regulatory obligations. Once the risk assessment has been completed risk mitigation strategies can be implemented to mitigate and manage resulting risks.
It is no defence, especially for a lawyer, to say that they were not aware of legal and regularly obligations placed upon them and their firms. Listing those obligations in an Obligations Register and then assessing the risks will ensure that all laws and regulatory obligations are met by the lawyer and the firm. Ultimately, it makes good risk management and reputation management to undertake this process.
- Develop an understanding of risk management strategies
- Obligations placed upon lawyers and law firms come from many different sources
- Sources include law, regulations, business ethic, legal ethics
- Obligations should be listed in an Obligations Register
- Risks associated with obligations should be assessed, the managed.
This article first appeared in the Law Institute Journal.
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