How to effectively complete a client & matter risk assessment part 1: A complete guide to the steps, challenges, and best practices

Category: Blog, Practice Management, Staying Compliant 5th July 2024

Understanding client and matter risk assessments

Client and matter risk assessments involve a systematic evaluation of all potential risks associated with a legal case or transaction. These risks can be legal, financial, operational, or reputational. The SRA’s guidance on risk management underscores the importance of conducting tailored risk assessments that consider the unique context of each matter. Effective risk assessments help law firms anticipate potential issues and implement appropriate mitigation strategies.

Key steps in conducting client and matter risk assessments

Initial risk assessment

At the commencement of any new matter, an initial risk assessment should be conducted. This step involves gathering all pertinent information about the case, including client details, the nature of the legal issue, and any preliminary concerns. Leveraging technology can streamline this process by ensuring all necessary data is collected systematically and efficiently. Tools that centralise data storage allow for easy access to comprehensive client and matter details, facilitating a more thorough initial assessment.

Identifying potential risks

The next step is to identify potential risks that could arise during the matter. These risks may include conflicts of interest, compliance with anti-money laundering regulations, reputational risks, or the potential for litigation. A thorough understanding of these risks is crucial for effective risk management. 

Evaluating risk impact and likelihood

Once potential risks have been identified, it is essential to evaluate their impact and likelihood. This evaluation helps prioritise risks and determine the level of scrutiny and resources required to manage them. 

Developing mitigation strategies

For each significant risk identified, appropriate mitigation strategies must be developed. These strategies may involve implementing additional checks, obtaining further information, or advising clients on alternative approaches. 

Documenting and reviewing

All findings and actions taken during the risk assessment process should be thoroughly documented. This documentation ensures transparency and accountability and serves as a valuable resource for ongoing risk management, future SRA visits, and assisting with applying for your PII. 

Compliance with regulatory requirements of client and matter risk assessments 

Adhering to SRA regulations is crucial for maintaining the integrity and reliability of legal services. The SRA Code of Conduct mandates that law firms implement robust risk management frameworks, including procedures to identify, evaluate, and mitigate risks. Compliance officers for legal practice (COLPs) and compliance officers for finance and administration (COFAs) are responsible for ensuring adherence to these guidelines.

SRA guidelines on risk management

According to the SRA, law firms must:

  • Implement procedures to identify and assess risks at the outset of any new matter.
  • Develop and implement appropriate measures to manage identified risks.
  • Regularly review and update risk assessments to reflect new information and changing circumstances.
  • Maintain detailed records of risk assessments and risk management actions.

The SRA provides client and matter risk assessment templates to help ensure compliance. In reviews of effectiveness, the SRA have stated they’ve seen good and poor use of the templates. Those who use them successfully have tailored them to suit the needs of the firm and case. 

Practical insights for effective client and matter risk assessments

Leveraging technology

Utilising technology is crucial for efficient and effective risk assessments. Digital tools designed to support compliance officers in managing risk include automated risk assessments, process workflows, centralised data storage, real-time updates, and customisable templates. By leveraging the tools – often found in practice and case management systems – firms can standardise processes, help to embed compliance tasks into their team’s daily processes, and improve visibility of potential risk. 

Training and awareness

Regular training for staff on risk assessment procedures and regulatory requirements is essential. Ensuring that all employees understand the importance of risk assessments and are equipped with the skills to conduct them effectively is crucial for maintaining high standards of risk management. Avoid hosting only one training session, its important employees are reminded of the process and the risks associated with not following policies. 

Record evidence 

To evidence to the SRA and your PII provider that you’re effectively managing risk, it’s important that the decisions made and actions taken are documented and tracked to explain rationale. This can help to evidence why actions were taken if a review on the file happens. 

Tailored risk management plans

Each legal matter is unique, and risk assessments should be tailored to the specific context of each case. Customising risk assessment templates to suit different types of legal work ensures that all relevant risks are considered and addressed appropriately. Flexible platforms support the creation of tailored risk management plans, enhancing the effectiveness of risk assessments.

Challenges in conducting client and matter risk assessments

Policies not actioned

The SRA found, in their latest sector review, that whilst most firms had a policy in place for conducting a CMRA, the processes were not always completed by fee earners. This is why monitoring, and reviewing that policies are actioned is key to effective risk management. Technology that provides automation flows can help to ensure employees follow the agreed processes and embeds compliance and risk tasks throughout their tasks. 

Complexity of legal matters

Highly complex legal matters, involving multiple parties, jurisdictions, and regulatory frameworks can make risk assessments challenging. Firms must be diligent in gathering comprehensive information and staying proactive in ongoing risk management. 

Keeping up with regulatory changes

The regulatory landscape is continually evolving, and staying compliant requires constant vigilance. Firms must keep abreast of changes to regulations and adjust their risk management practices accordingly. Tools that provide updates on regulatory changes, that can be integrated into existing tech, can help teams stay ahead. 

Balancing risk and client interests

Lawyers must balance the need to mitigate risks with the duty to act in their clients’ best interests. This balance can sometimes be challenging, particularly when clients are keen to pursue high-risk strategies. Effective communication and transparent risk management processes are key to navigating these situations.

Best practices for law firms to complete effective client and matter risk assessments

Efficiency, consistency, compliance, and transparency are crucial aspects of managing risk assessment processes. Automating routine tasks reduces the administrative burden on lawyers, allowing them to focus on more complex aspects of their work. Standardised templates and processes ensure consistency across the firm, reducing the likelihood of oversights. Staying compliant with regulatory requirements and maintaining detailed records promote transparency and accountability.

The SRA outline several good practices that they have witnessed with law firms across the UK whilst completing reviews, these include: 

  • Recording the justification of the risk rating they applied, where ratings were used
  • The CMRA was tailored to the firm’s and client’s risk
  • Explanations of decisions and rationale were documented 
  • The CMRA was proactively reviewed as a case progressed and new information was gathered 
  • The CMRA was continuously reviewed 
  • Fee earners were required to make an active assessment of risk, not rely on a tick-box form 

Effectively complete client and matter risk assessments 

Matter risk assessments are a critical component of effective legal practice management. By identifying, evaluating, and mitigating potential risks, law firms can protect themselves and their clients, maintain compliance with regulatory requirements, and enhance their overall service quality. Following best practices and utilising digital tools and automations ensure thorough and efficient matter risk assessments, equipping firms to navigate the complexities of modern legal practice.

In the next part of this series, we will explore how tech can help your complete client risk assessments, providing further insights and practical guidance for managing risks at every stage of the client relationship. 

Book a consultation to discover how Osprey Approach can help you effectively complete client and matter risk assessments across your teams. 

For further advice and best practices you can view parts two and three of our CMRA guide: 

Part 2: 7 Ways Osprey Can Assist Your Law Firm in Completing Matter Risk Assessments

Part 3: Identifying and Overcoming Common Risk Assessment Pitfalls Encountered by SME Law Firms