What is the big issue facing law firms in 2016?

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I was recently asked what I thought was the big issue facing law firms at the moment.  Our client base tends to be law firms with up to 100 lawyers in them and for these, the big topic that’s dominating conversations at the moment is regulation and compliance.

This was first triggered when The Solicitors Regulation Authority (SRA) implemented outcomes-focused regulation (OFR) in October 2011. OFR was a move away from the prior rules-based approach to one that focuses on high-level outcomes to govern practice and the quality of outcomes for clients. It is essentially risk-based regulation.

This all came in more than four years ago now and you would think firms had come to terms with it, sorted out systems and processes and be comfortable – or at least accepting – of the whole process.

But that doesn’t seem to be the case.

The new world of legal compliance

Regulation is now all about outcomes rather than the old tick box and rules-based approach.  As one client said, it is no longer ‘thou shalt be good’ but more ‘you work out how you will be good’.

There are very few hard and fast rules in this new world, which has been one shock.  The other is the naming of one or two individuals in a firm who are legally responsible for compliance.  And I have heard several law firm managers saying this is what can keep them awake at night.  These are the ones who did not step back quickly enough when the managing partner was looking round the partnership table to find their compliance partners.

What law firms are striving for is how they spot irregularities, how they have real confidence that all lawyers are being adequately supervised and to find that magic box that will assure them of all this.  There are software products (one endorsed by the Law Society) designed to help, but ultimately these can only help with the administration of compliance – they can’t detect or prevent breaches.

Why were legal regulatory changes brought in?

Before  Alternative Business Structures  were introduced, law firms were partnerships and there was collective responsibility for compliance and the quality of legal advice.  The new structures mean non-lawyers can own legal service firms and there is no longer that personal stake in ensuring quality advice was delivered. Hence compliance standards that cover all types of legal service businesses.

What are the challenges for firms?

Lawyers are all at sea with the new outcomes approach.  They are used to law being set in Parliament and then case law to interpret what it really meant and how it should be applied. There is no defined process or law on all this and no case law.

What approaches are law firms taking?

I mentioned that some firms have bought software, which firms are now beginning to understand is not the magic bullet they had hoped for.

No doubt software using artificial intelligence will be developed in due course and be a real tool for partners – but as I said in an earlier blog, this sort of intelligent software for law firms is still some way off being practical and affordable for most legal firms.

In our own legal software, we have added a risk and compliance model with alerts on any rule. Typically this is used for solicitors’ accounting rules to ensure no breach around money laundering or client care.  We are currently working with several firms to look at giving risk scores on certain criteria.

But alerts are extremely complicated to design and rely on fuzzy logic.  Using the example of software used by banks to protect credit cards, they are looking for patterns of use and then transactions that appear outside the norm.  Have you ever had your credit card blocked when on holiday because the computer suddenly spotted unusual spending habits?

This sort of software requires an enormous amount of data – and one of the problems with law firms is that few collect much data.

At the moment, software can track predefined rules such as client care letters being sent, signed and filed and files being reviewed by appropriate partners every three months or in whatever timeframe is agreed.

But the big worry for a law firm with say, 100 lawyers over three offices is how you keep track that all systems have been followed.

So the challenges facing law firms are first of all to work out what ‘good’ is and should look like and then put the processes in place to ensure this is being delivered.  Automation has to be the only way in due course – but it’s not there yet.

Our own business is looking at how we can help; we are keen to have more conversations to look at what we can develop to take some of this pain away.  Do contact me if you would like to be part of our working group on this.  Call me on 03333 010 766.

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