Embroker Team October 11, 2021 6 min read

Understanding Compliance Challenges For Law Firms

compliance for law firms cover

Law firms have an obligation to stay compliant with a host of regulatory requirements on the federal, state, and international levels, depending on the practice’s specialization.

And while compliance for law firms is a standard and unavoidable aspect of the job for those that provide legal advice and representation as a professional service, the processes and protocols involved in remaining compliant can be quite complex.

The legal profession has unique workplace requirements and the professional standards expected of legal professionals are very demanding. For example, lawyers commonly facilitate valuable financial transactions in various jurisdictions, which can lead to accusations of participating in the commissioning of crimes and money laundering.

Unlike most industries, ethical behavior is strictly codified for lawyers and regulatory and legal consequences are very real risks for legal professionals who aren’t abiding by these professional codes of conduct.

Additionally, law firms store and have access to massive amounts of sensitive client data. The rapid regulation of data and privacy via local and federal laws adds yet another layer of compliance exposure for law firms.

All of these risk factors are further complicated by the fact that law firm regulatory compliance processes are often difficult to understand, time-consuming, and expensive to implement.

Furthermore, foregoing compliance duties and codes of business ethics could put your law firm at risk of censure, devastating PR damage, and intense client dissatisfaction.

Let’s break down the top compliance challenges law firms face and what your practice can do to potentially avoid and overcome these issues.

Policies And Procedures May Not Be Enough

Obviously, the act of putting a plan of best practices and procedures in place will not guarantee compliance. It’s crucial to support these efforts with a strong office culture and ethical infrastructure.

The documented policies and procedures are not the only determinant of your team’s conduct. Without a strong culture, such policies and procedures will be difficult to implement and sustain. Your law firm’s culture should always start with the firm’s senior members, their actions, and the values they demonstrate both publicly and in the office.

policies and procedures illustration

Not only are senior management members expected to implement and respect regulatory and ethical best practices, they also need to promote them throughout the firm by investing time and money into staff training and education. Compliance laws and regulations are ever-changing, which is why it’s important that your staff members are constantly updating their knowledge of these issues.

Cyber Security Concerns

Data and privacy are becoming increasingly regulated across all industries. Law firms store and collect extremely sensitive and important client data, which means that a data breach or a cybersecurity failure of any kind can be devastating.

To help firms understand how to deal with these threats, the American Bar Association’s Standing Committee on Ethics and Professional Responsibility issued Formal Opinion 483 or the Lawyers’ Obligations After an Electronic Data Breach or Cyberattack. Opinion 483 provides relatively explicit guidance on what data security obligations law firms have, both before and after a breach occurs.

cyber security illustration

However, it’s not enough to simply understand what’s expected of your firm in terms of data compliance. Cybersecurity requires extensive, long-term investment into your IT infrastructure and cybersecurity staff, whether employees are in-house or outsourced. This may prove to be especially difficult for smaller law firms who might not have the necessary resources to provide adequate protection.

Limited Resources

As we’ve already mentioned, compliance regulations are evolving and becoming more complicated year after year. While this is great from the standpoint of quality assurance in terms of the services that clients are receiving from lawyers, keeping up with the constantly changing compliance landscape can prove to be challenging for smaller law firms.

limited resources illustration

In most cases, the level of risk increases as a business grows. What makes compliance different is that the same rules and regulations apply to all firms, no matter the size.

And while having a dedicated compliance team is a very common thing in larger legal firms, it’s somewhat of a luxury for smaller firms. That’s why education and training should be especially important for small firms.

If the budget isn’t there for hiring staff members who will be responsible for mitigating compliance risks, the best course of action is to preach and implement awareness and diligence to your entire staff.

The Global Market

The legal services marketplace is becoming globalized. We see more and more “global lawyers” who operate internationally and whose services are not limited to the jurisdictions for which they were educated and for which they are qualified. Important clients often require representation in multiple jurisdictions and practice areas, which could pose serious compliance risks for lawyers willing to provide services to these types of clients.

global market illustration

Naturally, the more jurisdictions you’re operating in, the greater the challenge of staying compliant becomes. Law firms that want to reap the benefits of the international economy and global legal market need to be prepared to invest serious efforts into being aware of all of the compliance and regulatory risks that can affect them when operating internationally.

A Changing Working Environment

A significant portion of the industry has started working from home as a response to the COVID-19 pandemic. However, this massive shift in working habits has not reduced the expectations placed on law firms to meet all regulatory requirements.

Under such circumstances, supervision, guidance, and training from senior leaders aren’t as hands-on and are, as a result, often less impactful when not delivered in person. Furthermore, the fact that computer systems are no longer centralized also exposes firms to extensive data and cybersecurity threats that might not have been as hard to manage when everyone was working from the same location.

work environment illustration

Lawyers using their own phones, computers, and networks complicate data security and the process of carrying out due diligence. The fact that many are now working from their personal computers also seriously increases the threats of social engineering attacks, which can put your legal data into a cybercriminal’s hands.

The greatest takeaway from analyzing compliance for law firms is that the best form of prevention is education, training, diligence, and technology. Investing heavily in all four of these phases is the best way to minimize compliance risks and prevent oversights and mistakes that could lead to regulatory violations.

How Insurance Can Help Your Law Firm Overcome Compliance Challenges

No matter how much you invest into prevention, compliance risks for law firms and other exposures are difficult to avoid entirely.

If your firm is accused of misinterpretation, negligence, failure to protect sensitive data, conflict of interest, or other ethical lapses, having a good legal professional liability policy may prove to be invaluable.

This insurance policy is a professional liability (or errors & omissions) policy that is specifically tailored to the risks that law firms typically face and will respond to cover defense costs, settlements, and trial-related expenses of such allegations. This is typically the first and most important insurance policy that both independent lawyers and law firms should buy.

Check out this short video for a quick explanation on how a legal professional liability policy can protect your law firm:


But what insurance policies can protect your firm from cybersecurity threats and data-related risks? For any law firm, having a strong cyber liability insurance in place is crucial. This policy will respond to the legal and reputational costs of a data breach.

However, from a compliance standpoint, the most important aspect of a cyber policy is that it can also help provide the funds needed to hire experts that will work towards uncovering the weaknesses of your cybersecurity policies that were responsible for the attack or breach.

insurance for law firms illustration

No matter the size or specialization of your legal practice, having a complete legal insurance program can be an important tool for mitigating the fallout of a potential compliance breach.

When looking at your coverage options, it’s imperative to work with expert brokers who are familiar with the risk profile of law firms and will be able to tailor policies to your specific needs. Feel free to connect with someone from our expert legal insurance team at any time to discuss your law firm’s insurance needs and options.

Related Articles

20 Best (and Worst) U.S. Cities for Lawyers

20 Best (and Worst) U.S. Cities for Lawyers

11 min read

Using our data, we put together lists of the 20 best and worst cities for lawyers to give you a better idea of how legal industries vary across the country.

Read More
A Guide to Data Security for Law Firms

A Guide to Data Security for Law Firms

11 min read

In this guide, we detail what obligations lawyers have to their clients regarding data protection and offer strategies to prevent, detect, and defend against cyber intrusions.

Read More