Legal Technology Journal

A recent study finds that new business intake processes and technology regarding compliance vary greatly within UK law firms.

n independent study to investigate the current processes utilised by UK law firms with regards to new matter inception has exposed the need for best practice guidance. Conducted at the beginning of 2006, the study analysed the new matter inception process at nine UK-based law firms (200+ fee-earners), finding a lack of strategically planned, holistic approaches. The problem? Though client intake processes do vary according to each firm’s unique business rules, it is essential that these processes are integrated, automated and auditable for optimal firm protection.

The study was initiated following a series of workshops examining the dichotomy between initiating and opening matter files, resulting in billable work, and the legislative requirements of law firms with regards to money laundering and conflicts checking. Feedback from the risk and compliance personnel that contributed to the discussions triggered the need to explore current law firm processes and technology with the ultimate objective of highlighting potential issue areas and providing guidance.

All the firms reviewed recognised the business-critical issues surrounding money laundering and compliance. However, each had only ‘done enough’ to meet the needs of this legislation and not brought the approach fully into their IT strategy. Many different tools, techniques and controlling mechanisms, with varying degrees of success, are being employed to manage the process and ensure the work is carried out. Whilst it was clear the obligations were being met, there was a missed opportunity to approach compliance as part of an integrated end-to-end business process.

Proactive compliance begins at matter inception, but continues throughout the matter life cycle. The study highlighted the need for firms to ensure that their policies and the technology used to support them are in synch.

In relation to education, all firms had conducted money laundering training, many of them using on-line methods, with some of these systems providing an electronic audit trail to ensure every person fully completes the coursework. Training on money laundering matters had been built into the normal personnel employment procedures for all firms, some conducted by compliance officers, others left to HR and the normal new recruit programme.

Interestingly, the penalties imposed by firms on their fee-earners to ensure procedure compliance (perhaps the most obvious way of ensuring adherence) varied greatly. Strong-arm tactics were considered unacceptable and uncommercial by partners and fee-earners, and therefore rarely used, posing an interesting question regarding the perceived acceptance of controls in this area.

Some firms imposed no penalties at all, leaving it to the partner to responsibly manage the situation, some stopped time recording for the client/matter in question, and others even had procedures in place to write off up to 60 days of time if compliance conditions were not met.

On the ‘softer’ side of money laundering control, the ‘know your client’ (KYC) requirements required increasingly by the FSA proved to be the weakest aspect of the new matter inception process. Although client data sometimes resided in the customer relationship management system, there was no example of identifiable, regular KYC activity being carried out. Furthermore, few firms cross-referenced against third-party databases. This perhaps highlights a lack of understanding and a need for best practice within UK law firms in this area.

With regards to technology, the firms examined had considerably different approaches to the tools required, often due to use of what was already installed. Most of the systems put in place were a reaction to a new obligation that was not planned for. Those systems were not part of a strategic risk management process, leading to the conclusion that further investment was likely due to changing compliance and regulatory needs, or, indeed, advances in technology. The overriding goal of these firms is to take in new business quickly, bringing together disparate processes, people and technology, and to meet their obligations. The approaches in many cases, however, felt almost like an ‘add-on’ rather than a truly integrated business process. This was not helped by UK lawyers’ low opinions of compliance projects, however well they were delivered.

Drawing together all these aspects of risk management around new business intake, the study concluded that even some of the largest, most established law firms in the UK did not have a holistic and well-thought-out strategy for end-to-end client and matter management and that there was no clarity in the marketplace nor de facto standard. There is no doubt that the firms themselves recognise this shortfall and are therefore looking for an automated, highly tailored, workflow solution for managing the client intake process.