The SRA's latest Regulated Activities Report contains some interesting statistics  for those with responsibilities for risk management in law firms.

The SRA has undertaken 428 formal investigations of firms in the year to end September, of which 395 were Forensic Investigations on issues such as fraud, misuse of client money, serious misconduct, and, topically, given recent announcements, anti-money laundering.  125 of these Forensic Investigations concluded with an 'adverse report' against the firm under investigation.

It has also carried out 531 visits to firms which were being actively supervised in the same period.

The SRA have also analysed the causes of reports made to their Risk Assessment Team regarding law firms.  Of over 3,000 risk assessments carried out in the last quarter, 42% were evaluated as a high or medium risk.  The highest number of reports related to debts and failures to pay, followed by financial difficulties in general.  Unsurprisingly, there are spikes in the numbers of firms with no PII cover shortly after the main renewal cycle.  The figures indicate that many firms are still facing difficulties as a result of ongoing economic pressures.

Interventions by the SRA have generally declined since 2010, hopefully as the worst impact of the financial crisis and recession recede, however the last year has seen a slight increase.   Interestingly, the number of interventions where dishonesty is a suspected issue has risen considerably over the last few years.

While insurers have noted that 2-4 partner firms tend to have a worse record of claims intimations than either sole practitioners or larger practices, the SRA report reveals that, by contrast, interventions are consistently higher (by a factor of 5) in sole practitioner practices than 2-4 partner firms, with a negligible number of interventions in larger firms.   This may be a consequence of some sole practitioners simply failing to manage their administrative, regulatory and financial burdens, given their relative lack of resource.

Lockton will be looking at financial management issues for law firms early in 2015.  We can also advise firms concerned about both internal and external fraud risks.

Get in touch with your Lockton broker to discuss these issues, or any others raised in this report.