1. Risk & Financial Management Allison Wooddisse & Emma Dickin Pslpracticecompliance@lexisnexis.co.uk

2. Risk Management Why is it important?

3. SRA’s perspective Run your business effectively and in accordance with… sound financial and risk management principles (Principle 8)

4. SRA Risk Outlook 2014/2015 Key risks identified

5. SRA Risks

7. Risk Management The dark arts exposed

8. 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)123 Impact medium (2)246 Impact high (3)369 x

9. 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 intervals RiskType 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 Strategic23.07.14 Mrs Senior Partner 9 93 28.08.14 Taken external advice on diversifying source of work or merger 05.10.14 Review advice and plan next steps

10. Exercise A: Risk register Task 1-3 (see Workbook p.1-4)

11. 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!)

12. Financial management

13. It’s SRA Principle 8 again! Run your business effectively and in accordance with proper governance and sound financial and risk management principles

14. Financial management Your obligations: Maintain systems and controls for monitoring: o the financial stability and viability of the firm, and o any risks to money and assets entrusted to you by clients/ others Processes for controlling: o budgets, expenditure and cash flow o 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)

15. Reporting obligations Notify 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

16. What could damage a firm’s financial viability? Common issuesThings to consider Loss of major clientsAre you over-reliant on one or a small number of clients/introducers? Loss of key peopleCan you institutionalise the relationship with clients? Inappropriate bank funding Is too much finance being provided through an overdraft ? InvestmentHow will the investment be financed? Poor budgets and MIDo you prepare detailed budgets & monitor fee income/expenses/cash flow performance against budgets?

17. Exercise B: Financial management good practice Tasks 1 & 2 (see Workbook p.5-7)

18. Common financial risk & stability tools

19. 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

21. Exercise C: Financial stress-testing (see Workbook p.8-10) Tasks 1 & 2

22. Our compliance

23. NoTitleArtist 10  OutsourcingBack Office 9  Client cancellationJonny Cashless 8  Trainee solicitor regimeChirpy Cheap Cheap 7  ComplaintsThe Wailers 6  Information barriersHush 5  Risk managementFore Sight 4  Financial managementMoe Monee 3  Financial Crime PreventionLaundro Matt 2  CybercrimeSpamma Lot 1  FATCASay What?

24. Free Lunch & Learn online compliance training DateTime Subjects covered *30 mins free CPD 09/10/201412:30-13:00Risk Management 16/10/201412:30-13:15Cancellation Rights 22/10/201412:30-13:00 Cybercrime 30/10/201412:30-13:00The New Trainee Solicitor Regime 05/11/201412:30-13:00Health and Safety 13/11/201412:30-13:00Equality & Diversity http://www.lexisnexis.co.uk/en-uk/products/campaign/consumer- practice-compliance-lunch-and-learn.page

25. Free Lunch & Learn online compliance training DateTime Subjects covered *30 mins free CPD 20/11/201412:30-13:00How to Write a Marketing Plan 27/11/201412:30-13:15Cancellation Rights 02/12/201412:30-13:00Residual Client Balances 11/12/201412:30-13:00 Client Care: Conflicts, Client Care Letter's and Terms of Business 16/12/201412:30-13:00Surviving a Lexcel Assessment http://www.lexisnexis.co.uk/en-uk/products/campaign/consumer- practice-compliance-lunch-and-learn.page

26. Free & confidential Practice Compliance HealthCheck http://practicecompliance.lexisnexis.co.uk/healthcheck

27. Freebies! For an electronic copy of our: Risk register Risk management policy Stress testing modelling tool email: pslpracticecompliance@lexisnexis.co.uk