New challenges, new risks?

As developments in the practice of the law, and changes in the law itself, appear to gather an ever quickening pace, so risk management policies, systems and procedures must be kept under almost constant review. That must have been very apparent to those who attended the Society’s recent “Nothing.but.the.Net” Conference 2000 and to anyone who has read commentaries or attended seminars on The Human Rights Act 1998.  

The Human Rights Act

Of course the profession is well used to coping with major changes in the law, however it isn’t every day that the profession has to deal with what has been compared to “a tidal wave, which will transform the legal landscape”.  

The profession has always had to cope with new legislation as it comes along and to advise clients on their new found rights and remedies, duties and liabilities.  What makes this legislation any different?  Commentaries indicate that this legislation may well impact on many areas of law which are not immediately obvious.  On this basis, the Act will have a broad impact and every solicitor may need to be aware of it, whatever their area of practice.  It is not, so it seems, something that will affect only a small number of specialist practitioners operating in a small number of specialist fields of law.

The risks to solicitors must include possible allegations that they have failed to advise clients on their rights and remedies and implications of the legislation generally.  What steps should be considered in order to address this risk?

Risk management pointers

The following points might apply equally to any significant change in the law -

• decide who needs to be conversant with the changes and ensure that all concerned have a thorough understanding of the changes and keep up to date with case law
• ensure that other personnel are not giving unchecked advice
• identify appropriate training events, ensure that appropriate personnel attend and that others in the practice receive a briefing from that delegate
• where appropriate, advice letters should be double checked and “signed off”
• review style and proforma documentation
• review any information sheets/guidance notes which are issued to clients on a thorough and regular basis
• review the content of any commentary contained in the practice’s website
• have procedures to ensure that reviews of style documentation and any information sheets are conducted at the appropriate level in the practice, do actually happen and are recorded in a review schedule
• consider whether it is appropriate to amend terms (letters) of engagement

Taking shares in lieu of fees

The practice of taking shares in client companies in lieu of fees raises distinct risk issues.  If you take or are considering taking shares in lieu of fees, you ought to have a set of protocols that avoid or reduce the potential pitfalls such as conflicts of interest.  

There will be a fuller discussion of the potential risks and potential risk controls in a future issue.  In the meantime, do be aware of the risks.

Financial Services and Markets Act 2000

David Cullen and James Wilson at the Society have been giving a series of presentations on the subject of the FSA regulatory regime for Scottish solicitors.  This will apply only to those firms conducting “mainstream investment business” from the second half of 2001.

It remains to be seen whether the new regime ultimately proves to be a positive or negative development from the point of view of the profession.  One of the striking features though is the extent to which the regime is built upon the risk management principles of identifying and evaluating risks and establishing appropriate risk controls.  Perhaps the following features of the new regime could be applied to other types of practice activity?

Strategic control - the new regime requires compliance to be a management issue rather than purely a matter for written procedures, monitoring and sanctions. There will require to be an individual principal with overall strategic control of investment business within a practice conducting mainstream investment business and that individual will require to be authorised.

Training and competence - this will not be a matter for prescriptive rules and regulations.  Instead, the onus will be on the practice to ensure and be able to demonstrate the competence of personnel fulfilling the various roles involved in the conduct of investment business.

Record keeping - James Wilson stressed the importance of having thorough records on file of issues discussed, advice given and instructions received.  As Mr Wilson put it “if it isn’t written down, it didn’t happen”. He urged those involved in investment business “to do themselves justice” by making a proper file record of advice, instructions etc. We would all do well to heed that advice, whatever type of work we are involved in. It is an old message but it remains as valid and compelling as ever.  In the absence of a proper note on file of advice given, matters discussed, instructions received, a client’s version of the discussion is very likely to be preferred to your contrary version.

These observations on the new regime are from a risk management perspective only and any detailed questions concerning the new regime need to be directed to David Cullen or James Wilson at the Society.

IT risks

The Society’s recent “Nothing.but.the.Net” Conference 2000 made all too clear the range of  business and legal risks that need to be managed by solicitors making use of IT in various ways in their practices.  

As part of his degree research, Charles Sandison, a solicitor undertaking an MSc has just completed a survey to establish how certain aspects of information technology have been adopted within the profession. Those aspects involve elements of risk management practice and issues of information security - the steps practices take to ensure that important data stored on computer is safe from a variety of threats.

Mr Sandison has agreed to make his overall findings and conclusions available to the Society and Marsh for the benefit of the profession as a whole. This will help to ensure that advice regarding the management of the risks associated with IT and the use of IT which is relevant and tailored to the specifics of the profession.  In the course of forthcoming issues of this page, some of the findings and conclusions of this survey will be reported along with risk management pointers.

Alistair Sim is Associate Director in the Professional Liabilities Division at Marsh UK Limited

The information in this page is (a) intended to provide guidance on matters of practical risk management and not on issues of law and (b) is necessarily of a generalised nature. It is not specific to any practice or to any individual and should not be relied on as stating the correct legal position.