Law firms have high levels of concern over the legal liability and regulatory penalties posed by lighter regulation under the government’s Leeds Reforms, according to a survey by compliance training provider Skillcast.
When the reforms were announced earlier this year, the government said the changes will ‘tear down the barriers to attracting investment in the finance sector by reintroducing informed risk-taking into the system, cutting unnecessary red tape, driving more finance into public markets and actively helping international companies to set up in the UK’.
With just six months to go until the first phase of the reforms is due to take effect, Skillcast’s survey of 170 full-time employees in the legal sector found 33% reported ‘high concern’ over the upcoming changes, with legal liability, regulatory penalties and reputational damage seen as the top three perceived risks.
But despite the recent introduction of the ‘failure to prevent fraud’ corporate offence under the Economic Crime and Transparency Act, fraud or financial crime exposure was ranked as a lower-priority risk. Finanancial loss and data or privacy breaches were also low on the list of concerns cited by respondents, which Skillcast said ‘indicates blind spots in organisational risk assessment’.
Just over a third of respondents (35%) said they anticipated positive impacts from the reforms, with 18% expecting negative consequences and 47% not sure what impact the changes would have. Only 31% of respondents identified ongoing monitoring and risk assessments as a top factor in complying with lighter regulation.
‘The Leeds Reforms represent a genuine opportunity for UK competitiveness as they fundamentally change how firms must approach governance, moving from following prescriptive rules to demonstrating outcomes-based compliance’ Skillcast CEO Vivek Dodd said.
“However, what our research highlights is that while a great deal of law firms welcome the promise of lighter regulation, they are equally aware of the hidden risks that come with it.
“Over eight in ten firms expressed concern about greater legal liability and reputational risks under lighter regulation, suggesting many aren’t fully confident in their current compliance structures. Furthermore, as 44% of law firms haven’t increased their compliance spending over the past 12 months, it raises the question of the damaging consequences this will have on numerous organisations across the UK.
“The concern is that while there’s a lighter approach to regulation, the danger is the effect of legal liability this will have on firms. Lighter regulation demands stronger internal controls, more sophisticated governance structures, and greater investment in regular compliance and monitoring capabilities. The firms that underestimate this transition risk serious legal, financial, and reputational consequences.”
