How a "back to basics" approach may assist firms in reviewing their risk management systems and procedures
Risk management begins with awareness of the risks that, unless controlled, may result in claims or complaints against the firm. That is followed by devising and implementing appropriate controls to address the risks that have been identified in order to minimise the risk of complaints and claims. But then what? Is that the end of the process?
It is never enough to introduce risk management systems and procedures, sit back and think that the job is done. Risk management is not a tick-box exercise. That applies equally to firms that are claims-free and who may be justifiably proud of the effectiveness of their risk management systems and procedures, as it does to firms that have an adverse claims record. To be truly effective, risk management systems and procedures need to be subject to periodic/ongoing review, appropriate training needs to be given so that all relevant staff are aware of them, and audit/review procedures should be put in place to ensure that there is compliance throughout the firm on a consistent basis.
Periodic/ongoing review is necessary to ensure, in the light of experience (of claims, complaints and “near misses”), and any emerging risks since the systems and procedures were introduced, that:
- systems and procedures remain effective;
- any gaps are identified and addressed;
- any systemic non-compliance is addressed (which may reveal an issue about their practical workability).
The Master Policy claims experience shows that certain basic issues arise time and time again, and therefore firms could usefully consider building in to their review procedures the following non-exclusive points:
Terms of engagement
Terms of engagement are an opportunity to manage the client and the client’s expectations, and minimise the risk of claims and complaints. For example, claims continue to arise where there is an argument between the client and the firm as to whether or not particular work (e.g. tax advice) fell within the scope of the engagement.
Is the work always properly scoped and, in particular, is work that does not fall within the scope of the engagement set out?
In order to avoid complaints of delay (even where the delay is not the firm’s fault):
- Are timescales indicated (with provision that revised timescales will be notified to the client)?
- Do the terms of engagement specify how often the firm will report to/correspond with clients and, since clients increasingly seem to expect an instant response to correspondence/emails, a timescale for response?
- To avoid disputes with clients about the level of the firm’s fee, is there a process for reviewing terms of engagement for ongoing work in progress, and notifying clients of changes in fee rates applicable to that work?
Managing critical dates
Although claims can arise from errors in basic diarising procedures, firms (even those that consider they have a “belt and braces” approach to managing critical dates) tend to be caught out by the following:
- Are fee earners aware of, and prompted to consider, all applicable time limits for their areas of work? Claims have arisen where the fee earners were unaware of “unusual” time limits.
- Are there procedures in place: (a) to double check from the outset that the critical date is correct; (b) to verify that it has been diarised correctly?
- Are there procedures in place to deal with a fee earner’s absence from work (whether on holiday or sudden/unexpected absence), to ensure that such fee earner’s cases or transactions with critical dates are attended to?
- Are there comprehensive file handover procedures in place to ensure that a fee earner taking over a matter from another fee earner is aware of, and has diarised as necessary, all critical dates?
- Where the firm has one or more branch offices, are the firm’s procedures followed in all the offices?
Registration/recording of deeds
Failure to record/register deeds timeously or, indeed, at all, has been, and remains, one of the most common causes of claim under the Master Policy.
- Are there robust procedures or checklists in place to ensure that all deeds requiring to be registered/recorded: (a) are sent for registration/recording; (b) are registered/recorded; and (c) are returned to the firm after registration/recording?
File closure procedures
Failure to ensure that all outstanding matters are dealt with before the file is closed and archived is a missed opportunity to avoid claims. For instance, a file closure procedure may reveal that a post-completion critical date has not been advised to the client and that the client has not acknowledged its responsibility for diarising that date.
- Is there a file closure procedure in place that ensures, by means of a checklist or otherwise, that all post-completion matters are attended to? For example:
– advising of any post-completion critical dates, such as the final date for intimating/bringing proceedings for breach of warranties contained in a share sale and purchase agreement;
– confirming to the client whether or not the firm will issue reminders in relation to such post-completion critical dates, and the timescales applicable if the client wishes the firm to act on its behalf in, for example, issuing a break notice under a lease;
– implementing/confirming the implementation of letters of obligation/undertakings;
– confirming to the client the firm’s arrangements for retention of deeds, the file and other documents;
– attending to any outstanding balances on the client account (for example, a credit balance may indicate that a deed has not been registered/recorded).
Russell Lang and Marsh
Russell Lang is a former solicitor in private practice who works in the FinPro (Financial and Professional Risks) National Practice at Marsh, the world’s leading risk and insurance services practice. To contact Russell, email: Russell.email@example.com
The information contained in this article provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insureds should consult their insurance and legal advisers regarding specific coverage issues.
Marsh Ltd is authorised and regulated by the Financial Services Authority.