Risk & Financial Management

Allison Wooddisse & Emma Dickin

Pslpracticecompliance@lexisnexis.co.uk

Risk ManagementWhy is it important?

SRA’s perspective

Run your business effectively and in

accordance with… sound financial and risk management

principles (Principle 8)

SRA Risk Outlook 2014/2015Key risks identified

SRA Risks

Misuse of client

money or assets

Information security and cybercrime (confidentiality)Inadequate succession or exit planning

Bogus firms

Financial difficulty

Inadequate systems and controls re

transfer of money (AML)

SRA Risks

Diversity of

profession

Failure to cooperate with regulatorInadequate service to

vulnerable clients

Lack of independence

(influential clients)

Improper/abusive litigation

Group contagion

Risk ManagementThe dark arts exposed

how bad would it be (impact)

how likely it is to happen (probability)

Risk register: Identify & evaluate risk

• Risk = impact x probability If a particular event happened:

• Use a risk matrix to rate the risk

Probability low (1)

Probability medium (2)

Probability high (3)

Impact low (1) 1 2 3

Impact medium (2) 2 4 6

Impact high (3) 3 6 9

x

Creating the risk register

1. Identify

2. Categorise (strategic / operational / regulatory)

3. Score (1-9: impact x probability)

4. Allocate responsibility

5. Decide how you will mitigate or manage

6. Review at regular intervalsRisk Type Date risk

added to register

Person responsible for the risk

Initial risk

rating: 1-9

Current risk

rating

Target risk

rating

Last action taken to

manage the risk

Next planned action

Over-dependence on conveyancing referrals

Strategic 23.07.14 Mrs Senior Partner 9 9 3

28.08.14 Taken external

advice on diversifying

source of work or merger

05.10.14Review

advice and plan next

steps

Exercise A: Risk register

Task 1-3

(see Workbook p.1-4)

Step 3: Risk management policy

• What is risk and why does it matter• General approach to risk management • Who is responsible for risk management• Processes for identifying, reporting & evaluating

risk• How you manage risk• How you monitor/update your risk management

policy(*Don’t forget about actually implementing your policy!)

Financial management

It’s SRA Principle 8 again!

Run your business effectively and in accordance with proper governance and sound financial and risk

management principles

Financial management

Your obligations:• Maintain systems and controls for monitoring:

o the financial stability and viability of the firm, ando any risks to money and assets entrusted to you by clients/

others• Processes for controlling:

o budgets, expenditure and cash flowo identifying and monitoring financial risks (including credit risks

and exposure)• Take steps to address issues identified (plan of action for

remedying issues and notify SRA, if necessary)

*(Lexcel imposes compulsory financial management requirements)

Reporting obligationsNotify the SRA promptly:

of serious financial difficulty

of any indicators of serious financial difficulty, eg• breach of bank covenants• inability to pay PII premium, rent or salaries

if you become aware your business may not be financially viable to continue trading as a going concern

of any serious issues identified as a result of your financial monitoring

What could damage a firm’s financial viability?

Common issues Things to considerLoss of major clients Are you over-reliant on one or a small

number of clients/introducers?Loss of key people Can you institutionalise the

relationship with clients?Inappropriate bank funding

Is too much finance being provided through an overdraft ?

Investment How will the investment be financed?Poor budgets and MI Do you prepare detailed budgets &

monitor fee income/expenses/cash flow performance against budgets?

Exercise B: Financial management

good practice

Tasks 1 & 2

(see Workbook p.5-7)

Common financial risk & stability tools

Common financial risk & stability tools

Tools

Budgets(P&L/Balance sheet)

Aged debtors report

Cash flow forecasts Average lock-up days

Variance analysis (budgets & cash flow)

Debtor days ratio

Credit monitoring WIP days ratio

Payments on account v WIP Stress testing

Stress testing

Exercise C: Financial stress-testing

(see Workbook p.8-10)

Tasks 1 & 2

Our compliance

No Title Artist

10 Outsourcing Back Office9 Client cancellation Jonny Cashless8 Trainee solicitor regime Chirpy Cheap Cheap7 Complaints The Wailers6 Information barriers Hush5 Risk management Fore Sight4 Financial management Moe Monee3 Financial Crime Prevention Laundro Matt2 Cybercrime Spamma Lot

1 FATCA Say What?

Free Lunch & Learn online compliance training

Date Time Subjects covered *30 mins free CPD

09/10/2014 12:30-13:00 Risk Management

16/10/2014 12:30-13:15 Cancellation Rights

22/10/2014 12:30-13:00 Cybercrime

30/10/2014 12:30-13:00 The New Trainee Solicitor Regime

05/11/2014 12:30-13:00 Health and Safety

13/11/2014 12:30-13:00 Equality & Diversity

http://www.lexisnexis.co.uk/en-uk/products/campaign/consumer-practice-compliance-lunch-and-learn.page

Free Lunch & Learn online compliance training

Date Time Subjects covered *30 mins free CPD

20/11/2014 12:30-13:00 How to Write a Marketing Plan

27/11/2014 12:30-13:15 Cancellation Rights

02/12/2014 12:30-13:00 Residual Client Balances

11/12/2014 12:30-13:00 Client Care: Conflicts, Client Care Letter's and Terms of Business

16/12/2014 12:30-13:00 Surviving a Lexcel Assessment

http://www.lexisnexis.co.uk/en-uk/products/campaign/consumer-practice-compliance-lunch-and-learn.page

Free & confidential Practice Compliance HealthCheck

http://practicecompliance.lexisnexis.co.uk/healthcheck

Freebies!

For an electronic copy of our:

• Risk register• Risk management policy• Stress testing modelling tool

email: pslpracticecompliance@lexisnexis.co.uk