Tim Barnett
Tim Barnett, CEO of Credas Technologies
The legal sector is under mounting pressure from regulators, clients and economic conditions to streamline compliance. The SRA, for example, more than doubled the number of fines it dished out to law firms in its last published financial year (23/24).
The trouble is that managing compliance can feel like peddling backwards. When PwC surveyed 1,802 executives on compliance challenges, the vast majority (85%) agreed that compliance requirements had become more complex over the last three years. From fraud risks to cross-border complexity, there are an array of challenges facing the profession.
Simultaneously, internal processes are failing to modernise fast enough to manage these challenges, not only impacting a firm’s efficiency but also the quality of service for their clients too. A widening gap is emerging between regulatory and customer expectations and a firm’s operational reality – and it’s why legal compliance needs a digital upgrade.
The compliance burden
Identity verification (IDV) and anti-money laundering (AML) checks are not just tick-box exercises but critical to business performance and safeguarding the legal profession’s reputation. Conveyancers and property solicitors need to conduct swift but thorough AML checks on clients, while general law practices have a whole variety of know your customer (KYC) and customer due diligence checks to perform.
But paper-heavy processes, spreadsheets and siloed systems can frustrate both firms and clients. Repeat IDV checks, for instance, are a prevailing problem. For the same housing transaction for example, a single client might be asked to provide proof of identity in person multiple times – once to their estate agent, again to their solicitor, again to their conveyancer, and then again to their lender.
AML regulations are also growing steadily more demanding, requiring firms to provide evidence of not just checks, but also risk assessments and ongoing monitoring. For smaller firms in particular, meeting these requirements can be particularly burdensome. Crucially, a compliance failure doesn’t just carry the threat of fines; it risks long-term damage to trust between a client and a firm.
Time for a digital upgrade
People increasingly expect seamless digital onboarding and services, especially as other service providers like banks operate in this way. Indeed, sectors like finance and healthcare have already seen significant benefits from digitising compliance and shown it is both achievable and effective. Legal firms risk looking outdated if they don’t follow suit.
More importantly, digital IDV platforms offer legal practices – both large and small – a far more streamlined, modern and cost-effective way for conducting compliance. When it comes to verification, for example, an IDV platform can use biometric facial recognition ID software to accurately and automatically verify the person against their identity document, which has also been confirmed as authentic in real time by the IDV system. This data is then securely stored on servers and available as and when it is required to avoid repetitive checks and errors.
Gathering ‘source of funds’ is also a key part of KYC and AML processes. Traditionally, this can require a lot of back and forth between the client and the firm and the exchange of paper statements or PDFs. Yet Open Banking technology can provide legal practices with real-time and secure access to an applicant’s bank activity and allow clients to share their financial statements directly. This ‘tamper proof’ evidence mitigates fraud, and by connecting financial records to the actual account holder, bolsters identity verification too.
IDV systems can also perform automatic database cross-checks with various sources. For example, they can screen clients on international sanctions lists to ensure they are not sanctioned and then set up ongoing monitoring, or verify ownership against Land Registry records or Companies House.
With these efficiency gains, digital IDV tools allow legal practices to complete checks in minutes rather than days. And by accelerating the progression of cases, law firms can drive their business too, while enhancing their reputation.
Shareable compliance
Picture a model where once a client’s identity is verified, that verification can be securely shared across various parties in a transaction. Take buying a house today. Buyers routinely prove their identity or source of funds to estate agents, conveyancers and mortgage brokers separately. Each check is costly, time-consuming and susceptible to error. But a shareable compliance framework could dramatically reduce duplication without compromising on security.
The law sector, in partnership with regulators and other professional services, could pave the way in developing standards for shareable compliance by using digital tools. A firm’s strategy can encourage the adoption of these tools, while the tools themselves provide the means to build this shareable reality. This could eventually extend to every area of law, from property and corporate transactions to wills and probate.
The adoption of digital compliance tools requires a cultural shift, from both law firms and clients, in seeing digital compliance as safer and more accurate than traditional methods.
Regulators like the SRA and FCA are in fact very supportive of digital IDV and AML checks if standards are met. But while technology can significantly improve the process, it doesn’t replace the need for lawyers to apply their judgement and reasoning on cases – if anything, it enhances their ability to do this.
Leading the digital change
In a world where regulatory pressure is mounting, compliance complexity is growing, and client expectations continue to evolve at pace, digital tools offer law firms a highly effective way of simplifying and streamlining their compliance processes. Digitalisation can transform legal compliance from an administrative burden into a strategic asset: one that reduces repetitive processes, speeds up KYC and AML checks, and builds a model of shareable compliance.
The question is no longer whether compliance will be digital, but whether the legal profession will lead that change – or be forced to catch up under pressure from regulators and clients alike.