In this article covering the launch event in the Today’s Training Risk Management series, we summarise the panellists’ views on the risk and regulatory landscape currently facing the legal services profession.
The audience for the well-attended webinar heard from specialists in law firm regulation, insurance and management. Some questions prompted disagreement amongst the panel, most notably the impact of working from home on risk, but panellists were fully aligned on the correlation between good business management and effective risk mitigation.
Regulators – Friend or Foe?
The discussion opened with an exploration of the key factors expected to impact risk within Legal Services firms in 2025.
Calum MacLean of Miller Insurance services, “I think it’s the attitude and behaviour of regulators that will have the biggest direct impact. We are seeing a lot of regulatory activity and it’s not all helpful.”
Andrea Cohen of Weightmans Compli continued, “The regulatory burden is already huge and it’s getting bigger. The extent of regulatory activity is such that firms are having to constantly adapt to regulatory change.”
Continuing with the topic, Andrea observed the Solicitors Regulation Authority’s (SRA) increasing tendency to pursue ‘easy targets’ by challenging historic working practices instead of crediting firms for what they are getting right and encouraging them to build on it. Andrea reported that firms are finding it increasingly hard to anticipate the regulator’s expectations to confidently implement regulatory changes. This is leading to firms adopting a tick box approach to compliance rather than using it to develop the Practice. Citing the Client-Onboarding process as an example, “for some firms the process is all about ticking boxes rather than making the most of the opportunity to really understand the client and build on the relationship.”
Well run firms are lower risk firms
Introducing the importance of good business management, a theme reiterated throughout the webinar, Andrea observed that firms with the right foundations in place; training, culture, people, processes and resource are better placed to successfully navigate a challenging regulatory landscape.
Supporting Andrea’s observations, Simon McCrum of McCrum Legal forecast a continued worsening of the risk landscape but, stated that it’s not necessarily something for firms to be afraid off. “If firms get the principles of good business management right, they’ll be better positioned to manage risk, and they will be better businesses and that creates opportunities”.
Simon continued to underline the need for (1) “management” to be just that – active management that comes with rules and rails and with a non-negotiable way that the business and everyone in it does things internally and externally, and (2) a cohort of partners who know the way, show the way, and go the way. It needs leadership.
Cash is king
Simon shared his views on the challenges that would keep him awake at night if he were a Managing Partner, “business risk, not getting paid and cash risk”. Focusing on cash risk, Simon commented, “the interest generated on the client money account is currently keeping the lights on in a lot of firms. There’s not enough margin in the system to sustain practices if interest rates continue to fall or we move to third-party management of client money. Law firms need fat on the bone to weather storms, whether those storms are triggered by an unfavourable regulatory environment or continued political and economic uncertainty.”
Simon also referenced the role of cash flow in determining a firm’s ability to recruit and retain talent, a theme which Paul Saunders of Legal Eye continued, “Some sectors of the industry have suffered an exodus of talent. The ability to attract and retain great quality experienced people is crucial to managing risk. Salary is important but employees also want a safe and secure working environment, and they want a better-quality employee experience.”
Structural Change
Continuing the theme of retention, Simon referred to the growing number of senior lawyers leaving private practice to join platform firms as consultants. This shift, which Lexis Nexis has predicted could lead to a third of all Lawyers operating as consultants by 2026, is running in tandem with continued consolidation.
Calum MacLean, “The legal services sector is going through a period of structural experimentation and change. There’s been an increase in disruptor firms and we’re continuing to see market consolidation. This inevitably results in innovation and positive change but it also enhances the risk of insurance claims. Disruptor firms often aggressively chase growth, in some cases without the foundations in place to successfully blend multiple operating models to effectively manage risk across acquired businesses. Risk is further enhanced by the tendency of some disruptors to acquire distressed businesses.”
What are Professional Indemnity Insurance (PII) claims telling us?
Moving on to trends in PII claims but continuing with the topic of M&A activity, Calum briefly addressed the importance of analysing a target’s historic risk within the due diligence process. “The approach to assessing historic risk has improved but corporate greed is still resulting in shortcuts being taken, with acquirers focusing on the big prize rather than applying robust business or legal thinking. Those deals not only enhance risk for the acquirer, but also for the legal profession.”
Calum observed that we are in a period of relative calm for PII claims which is helping to underpin the softening of PI insurance rates. “However, clients are increasingly confrontational and are more likely to make an allegation of negligence. Claims values are also ratcheting up and the costs of defending claims is materially increasing. An area of practice experiencing a marked increase in both claim numbers and values is Private Client work where higher asset values, volatile markets and complicated family structures all contribute to higher value, more complex claims. This is resulting in insurance underwriters spending more time scrutinising Private Client work to understand the nature of the instructions firms are undertaking and, the approach to risk management. We are also seeing an increase in very high value claims arising from Corporate and Commercial work, specifically Banking and Tax instructions.
Positively, there’s been a decline in claims arising from fraudulent property sales but political instability, the increase in working from home and the growing use of Artificial Intelligence is enhancing cyber threat. Regulatory activity is not necessarily targeted at areas of concern to PII underwriters but, Cyber is one field where there’s strong correlation between regulatory focus and insurance claims with both the SRA and the Information Commissioner’s Office gaining financial teeth via enhanced fining powers.”
Calum finished on the theme of the Regulation by stating, “If the SRA’s fining powers increase much further, I think we could be in a really scary regulatory environment.”
The future of Regulation
Andrea Cohen, “There’s potential for regulation to have a fundamental impact on the sector. Take for example the recently completed consultation on the client money account. If this leads to the adoption of a centralised facility administered by a third party, it will result in huge changes to the sector.
This along with other examples such as the SRA’s wish to extend its powers to impose unlimited fines in respect of regulatory breaches, similar to its powers under the Economic Crime and Corporate Transparency Act 2023, feels like the Regulator is using sledgehammers to crack nuts, rather than focusing on improving their own processes.
Most firms will deal with what’s coming down the line providing they are given the right guidance and support but, if you asked me if I wanted to work in an industry where there’s a potential for me to be fined the equivalent of my entire annual salary, my answer would be “No.”
The role of technology
Commenting on the webinar, Angela Hesketh of series sponsors, PEXA “As this discussion clearly shows, effective risk management is no longer a back-office function—it is central to the resilience and future-readiness of legal services firms. At PEXA, we recognise that managing risk in today’s environment requires not only strong internal foundations—such as leadership, culture and operational discipline—but also intelligent adoption of technology that enables firms to operate with transparency, agility and control. As the regulatory and economic pressures on the profession continue to evolve, we’re committed to working collaboratively with the sector to help build more robust, digitally empowered legal ecosystems that reduce exposure to risk while enhancing client trust and business sustainability.”
Thank you to Andrea Cohen, Weightmans Compli, Simon McCrum, McCrum Legal, Paul Saunders, Legal Eye and Calum MacLean, Miller Insurance Services and the Chair, Emma Vigus.
The next training event in the risk management series takes place online, on Wednesday 7th May 11.15am when former managing partner and now law firm consultant Simon McCrum discusses how he helps firms and the people and the teams in them to become The Perfect Legal Business.Wednesday 7th May 11.15am when former managing partner and now law firm consultant Simon McCrum discusses how he helps firms and the people and the teams in them to become The Perfect Legal Business.
For details of all the events in the series: www.todaysmedia.co.uk/risk-management-series/
Emma Vigus is an Insurance and Risk Management adviser to the Residential Property industry
