Key risks—law firms

The following Practice Compliance practice note provides comprehensive and up to date legal information covering:

  • Key risks—law firms
  • What is risk?
  • Categories of risk
  • Key risks
  • Strategic risks
  • Operational risks
  • Regulatory risks
  • Internal v external risks
  • Higher risk practice areas
  • Higher risk clients

Key risks—law firms

Our practice note: Formulating a risk management policy sets out how you might do this. This practice note identifies some common risks facing law firms.

What is risk?

There is a widely accepted definition of risk, ie:

Risk = probability x impact

So, for any given risk faced by your business, there are two questions:

  1. how likely is it that the risk will materialise, ie what’s the probability?

  2. if the risk does materialise, how bad will it be, ie what’s the impact?

Categories of risk

Risk is typically categorised, eg:

  1. strategic risk—risks that could materially affect your firm’s survival or profitability

  2. operational risk—risks that are associated with day-to-day activities and management

  3. regulatory risk—the risks you face from non-compliance with your regulatory obligations

Some risks may fall into more than one category.

Key risks

Different firms face different risks so it is important that you identify the specific risks faced by your firm. Our Risk management policy sets out various methods for doing so.

There are some risks that are more common than others and are likely to affect most firms. These are shown in the tables below.

Strategic risks

Risk areaDescription
Partner/director holding a controlling or financial interest in a clientIndependence compromised—inability to act in the best interest of the client—conflict of interest risk. See our: Conflicts of interest—law firms—overview
Outside individual or company holding an interest in

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