In 2003 the Basle Capital Accord set the challenge to Financial Institutions: to create systems and controls that will contribute to the management of ‘the legal aspects of operational risk' (legal risk). But although Financial Services dominate this area, legal risk is an issue across all sectors.
Since that initial challenge was set in 2003, little seems to have been done in any sector to clarify what is meant by "legal risk", or to support organisations to manage it (our legal risk consultancy is a unique and recent example of a law firm taking the lead in this area). After 10 years, how well understood is this important risk type? And how are organisations coping with the challenge to identify and manage it? Our Legal Risk Benchmarking survey set out to answer these key questions and incorporates responses from eleven different sectors across Europe, the Americas, Asia Pacific and Africa.
Legal risk should be taken seriously, two recent headline Financial Services examples show how a material legal risk - one that could have been identified and managed - has caused significant financial and reputational damage. The well-publicised PPI scandal and more recent swaps mis-selling scandal are predicted to cost UK high-street banks up to £22bn. And perhaps as a result of such losses, Financial Services regulators across Europe are now increasingly asking organisations to identify and manage their exposure to legal risk. Because of this, and supported by the survey results, we believe that organisations across all sectors would benefit greatly from taking a risk-based approach to their legal work.
I hope you find the results and analysis useful and would be interested to get your views on the issues covered. If you would like to discuss any aspect of the report then please do get in touch.