Kayleigh Smale

AML, Compliance & Anti-Fraud Specialist

Do you feel confident that you know what you should be looking for when carrying out a conflict of interest check?

I have been asking this question a lot lately whilst on the discovery trail with my product team colleagues at Legl.  Figuring out whether there is a conflict of interest can often be really tricky and time consuming. There are so many variables to think about and with systems that can only “pull” matching data for you, you may find yourself sifting through quite a large list of results, most of which isn’t even relevant!

Over the years it has been interesting to observe the different approaches law firms have taken to deal with searching for a conflict of interest. From searching names and addresses in their case management system (CMS), to sending an email round to everyone in the firm asking if it is ok to act on a matter.

Some firms have legacy policies and procedures which have been passed down to each new COLP or managing director and no one has questioned whether it is actually fit for purpose. 

I have also heard about some interesting conversations surrounding processes for conducting a conflict of interest: 

“we are required to search two directors of a company”

Ok, interesting… So what about any other directors of the company and what about beneficial owners of the company? Why only two directors?

I feel a lack of training contributes to this. Those of you who know me will know that as a debt recovery paralegal (many many years ago), due to the lack of conflicts training, I opened a file and initiated legal action against one of our client's subsidiaries! 

Now, as you are aware you are conflicted if you cannot act in the client's best interest due to competing interests.

Conflicts can arise between you and your client (own interest conflict) or between two or more clients (client conflict) and then you may have commercial conflicts, which whilst there may not be a legal issue, create an internal commercial challenge in acting for or against a certain party. 

Don’t forget that there can also be an own conflict issue in circumstances where you need to put something right when something has gone wrong or you have made a mistake on the matter. 

As conflict checks are often the first stage of a client and matter risk assessment, assessing reputational risk with wider searches such as adverse media as part of the conflicts process, can alert you to avoiding commercial risk and ensure compliance with ESG policy.

Most importantly identifying potential conflicts in all of the above scenarios is a judgement call for you and your firm, and it's essential to be able to justify your decision should you choose to proceed. It is your job to assess each situation individually on the facts to determine if you can act and record your decision.

If you decide to proceed, it's crucial to regularly review the matter, with robust ongoing monitoring and keep in mind the potential for conflicts of interest to arise throughout the matter lifecycle. Regular review and careful consideration are key to managing conflicts effectively.

Just remember, the questions you want to be asking yourselves are:

  • Is there a potential conflict?
  • Can you safely act and continue to act in the best interests of your client?
  • Does the information you have for one client benefit another?

And last but not at all least, make sure you keep a written record of your decision making! You need to be prepared to justify your decisions and actions on audit, so make sure you evidence your thought process and how you exercised your professional judgement.