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Risk & Financial Management
Allison Wooddisse & Emma Dickin
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: [email protected]
