Compliance teams are the unsung heroes of the legal world.
They’re critical to the way firms operate; the guardians that ensure both business and clients stay safe.
But unsung is the operative word.
It’s not an easy job. Compliance managers have to fend off risk across the whole firm, and are under a lot of different pressures – from changing regulation to the rise of remote-first operations.
Compliance is complex – and mistakes cost
The more clients being onboarded, the tougher that challenge gets.
Every single one of them – big or small, individual or business – will need to be put through Customer Due Diligence (CDD) measures of some kind before work can begin. And it’s not always easy to spot which clients might pose a threat.
Take Anti-Money Laundering (AML). Sure, compliance teams can reference clients against Sanctions lists – but those only include a few thousand names. They don’t give firms the full picture about who might pose a risk to their business and why. So compliance teams have to run more AML checks – looking at PEPs, adverse media and so on. Add in the fact that, online, identities can be falsified with relative ease, and the massive scale of the task starts to come into focus.
What makes it harder still is that the stakes are so high.
Get CDD wrong, and the results can be catastrophic. Fines for compliance breaches can stretch into the tens of thousands and do serious reputational damage – a hit firms can hardly afford to take when the market is so competitive.
Analogue processes make issues even worse
That’s why it’s critical to streamline client onboarding and CDD as much as possible.
It’s a hard job that gets harder with high volumes. And while there’s no getting around CDD requirements, there are ways to make them easier, taking unnecessary pressure off compliance teams and reducing overall risk.
The simple fact is that the way the majority of law firms currently work is making things worse.
Because onboarding processes differ according to practice area, type of client and type of work, there’s little structure around how, when and by whom CDD will be performed. That inconsistency isn’t just a logistical headache, but a real risk, as it opens up the opportunity that critical steps will be missed.
Poor onboarding exposes firms to unnecessary risk
Poor CDD and onboarding processes can actually expose firms to more, not less risk.
Take document sharing. New clients need to provide a range of documentation – but some will share it in email threads, some by post, and some in several separate batches. That makes it very difficult to retain consistent visibility over who has viewed, signed and witnessed each document. It also multiplies the amount of data entry that’s needed, increasing the risk of human error.
Firms using outdated, manual processes are also missing out on the benefits of new technology. For instance, identity verification methods that rely on clients taking ID to the post office for in-person review are not only frictional, they’re also proven to be less effective than tech solutions.
That makes life harder on two fronts: risk of customer attrition and risk of fraud.
But perhaps the biggest problem of all is that compliance teams can’t accurately measure their firm’s risk exposure. Fragmented processes make it near-impossible to get a reliable measure and calibrate an appropriate Risk-Based Approach. Without that, compliance teams could be wasting time and money and still not adequately protecting their firm from risk.
Technology can turn compliance teams
back into an asset
Compliance teams can be a law firm’s biggest asset – but current ways of working are setting them up to fail.
It’s time to upgrade.
Better onboarding technology can help ensure that a firm’s Risk-Based Approach is followed in a consistent manner, by every member of the team and for every new client. It enables potential risks to be more easily identified and escalated. It cuts out all the back and forth that increases the chance of miscommunication and human error. And it streamlines processes, so compliance teams can spend more time on business-critical work.
About the author
Lauren Watson is Head of Legal Partnerships at Legl, the end-to-end client onboarding and firm-wide insight solution helping law firms succeed in a digital-first world.
She works with law firms across the UK from high-street practices to top 100 multinational law firms and is an expert on LegalTech for client due diligence, remote onboarding and online payments.
Lauren is passionate about how technology can improve access to legal services and help law firms to operate effectively and compliantly.