LIA 4003 Management of Law Practice Group Project Proposal PDF

LIA 4003 MANAGEMENT OF LAW PRACTICE GROUP PROJECT PROPOSAL TOPIC: REGULATORY COMPLIANCE AND RISK MANAGEMENT - AN ANALYSIS ON HOW MALAYSIAN LAW FIRMS ENHANCE INTERNAL COMPLIANCE AND RISK MANAGEMENT AMID EVOLVING REGULATIONS PREPARED BY: PAM & QUISHA J...

LIA 4003 MANAGEMENT OF LAW PRACTICE GROUP PROJECT PROPOSAL TOPIC: REGULATORY COMPLIANCE AND RISK MANAGEMENT - AN ANALYSIS ON HOW MALAYSIAN LAW FIRMS ENHANCE INTERNAL COMPLIANCE AND RISK MANAGEMENT AMID EVOLVING REGULATIONS PREPARED BY: PAM & QUISHA JERUSHAH JEET KAUR A/P INDERJEET SINGH U2004057 KUM YEN SHIA U2105255 PARVANEETHA A/P SUBRAMANIAM U2105178 QISTINA RUKKAIYAH BINTI ROSLAN U2105268 PREPARED FOR: MR LEE JI EN SUBMISSION DATE: 23 DECEMBER 2024  INDEX 1.0 ABOUT US............................................................................................................................. 1 2.0 LITERATURE REVIEW.......................................................................................................... 2 3.0 KEY ISSUES WITH PROBLEM STATEMENT....................................................................... 3 4.0 OBJECTIVE........................................................................................................................... 3 5.0 METHODOLOGY................................................................................................................... 4 6.0 PROBLEM STATEMENT ANALYSIS.................................................................................... 5 6.1 Introduction on regulatory compliance and risk management................................... 5 6.2 Existing and evolving legislation on regulatory compliance and risk management..................................................................................................................................................6 6.3 Arising issues currently faced by law firms in Malaysia......................................... 15 7.0 ADDRESSING PROBLEM STATEMENT: A STEP FORWARD.......................................... 18 7.1 How To Enhance Risk Management.................................................................................. 18 (a) Leverage Technology....................................................................................................... 18 (b) External Expert Inductions............................................................................................... 20 (c) Organisational Reformation..............................................................................................20 (d) Revamp Risk Management Procedures...........................................................................21 7.2 How to Enhance Corporate Governance...........................................................................21 (a) Fostering A Culture of Compliance.................................................................................. 21 (b) Information Transparency.................................................................................................22 (c) Reform Corporate Ownership Structures......................................................................... 23 (d) Reporting Duties of Internal Controls............................................................................... 24 8.0 CONCLUSION......................................................................................................................24 9.0 REFERENCES..................................................................................................................... 25 10.0 APPENDICES.................................................................................................................... 26 1.0 ABOUT US Established in 2015, Pam & Quisha is a boutique firm with 4 partners and 10 staff that is committed to excellence and integrity. Our team of experienced attorneys brings a wealth of knowledge across various legal disciplines, particularly in bankruptcy, construction, wills and probate, corporate law, family law, criminal defence, and intellectual property. At Pam & Quisha, we understand that navigating the legal landscape can be complex and daunting. Hence, we prioritise clear communication and personalised attention, ensuring that our clients feel informed and empowered throughout their legal journey. Our approach combines strategic thinking with a deep understanding of the law, allowing us to deliver innovative solutions and achieve favorable outcomes. Whether you are an individual seeking guidance on personal matters or a business in need of comprehensive legal support, Pam & Quisha is here to advocate for your interests with passion and dedication. In order to better serve you, we constantly commit ourselves to professional development, ensuring that we stay at the forefront of legal trends and best practices. As such, we invite you to partner with us in this research proposal as we navigate some pervasive ordeals faced by Malaysian law firms. In recent years, the legal landscape in Malaysia has evolved significantly, prompting law firms to confront a myriad of challenges associated with risk management and corporate governance. As highlighted by the Malaysian Bar's initiatives, there is a pressing need for law firms to adopt robust risk management frameworks to safeguard against various liabilities and enhance their service delivery.1 Pam & Quisha aims to explore the complexities faced by Malaysian law firms in the realms of risk management and internal compliance, while also identifying viable solutions to enhance operational resilience and compliance, where we hope to assert significant solutions to be adopted by other Malaysian law firms facing such predicaments. 1 Malaysian Bar. (n.d). Risk Management Campaign Launch (16 March 2024). Malaysian Bar. Retrieved from. Site accessed on 23 Dec 2024. 1 2.0 LITERATURE REVIEW In today’s affluent business climate, no law practice can afford to neglect risk management practices. Clients have become more educated in their demands, less tolerant of poor service delivery and delays, and aware that lawyers can be sued for poor services. Hence, the threat of negligence is always around the corner. It is paramount for law firms to firstly identify the type of risk they are exposed to, as this would enable them to devise suitable measures to reduce resource wastage and obviate the risk. 2.1 Risk Management In an organisational context, risks are classified according to the nature of the firm. Risk management studies within an organisational context have discovered various risk categories such as operational risk, financial risk, strategic risk, supply risk and regulatory risk. To maintain consistent and successful risk management practices, the firm must be fully aware of its internal and external environments. The nature of the firm, top management influence, government impact, organisational actors’ knowledge, competence and cost of risk management implementation are all factors to consider to the epistemic process of risk management emergence in organizations.2 Ultimately, there is a need for practice of risk management among law firms involved to secure the safety and performance index. Unfortunately, Malaysian law seems to be inadequate in establishing the framework for risk management in relation to design works. Hence, other modus operandi needs to be integrated.3 2.2 Internal Compliance “Compliance Framework” is a structured process or system through which companies demonstrate that they have conformed to specific requirements in laws, regulations, contracts, strategies and policies.4 Legal and compliance share a close working relationship 2 Shatnawi, S.A, Hanefah, M.M, Anwar, N.A. & Eldaia, M. (2020). Factors Influencing The Enterprise Risk Management Practices and Firm Performance in Jordan and Malaysia. International Journal of Recent Technology and Engineering (IJRTE), 8(5), I2277,3878. Retrieved from. Site accessed on 20 December 2024. 3 Rashid, Z.A.R & Adnan, H. (2008). Legal Framework on Risk Management for Design Works in Malaysia. Journal of Politics and Law, 1(2). Retrieved from. Site accessed on 23 December 2024. 4 Hashimoto.Y, & Zulkipil. F. N. (2022, February). Compliance Framework in Business Corporations The importance of Company’s Policies and Procedures. One Asia Lawyers. Retrieve from 2  due to the overt legal and regulatory content of compliance. In the wake of corporate scandals, increasing numbers of lawyers are now performing quasi-legal roles, which includes among others, compliance officers. Where a lawyer is responsible for compliance or placed in a position of supervising compliance, various conflicts of interest and professional conflict exist because the lawyer may be placed in a position to subordinate the compliance function to legal concerns. As lawyers, we are required to keep confidence and not reveal information except in limited circumstances.5 3.0 KEY ISSUES WITH PROBLEM STATEMENT As will be seen in the Problem Statement analysis and throughout this proposal, Malaysian law firms must comply with a staggering amount of laws and regulations. For small and medium-sized firms, this is already no easy feat and may even be impossible; for established law practices, there is still much room to improve on good corporate governance and risk management. Mere compliance with existing standards of corporate governance and risk management is insufficient in ensuring good corporate governance and risk management for regulatory compliance is the bare minimum. The bare minimum is insufficient to meet increasingly demanding and educated clients, let alone to attract clients. In this proposal, it will become evident that ultimately, for enhancing both corporate governance and risk management, Malaysian law firms need to stay abreast of current developments, legal or not and to change with the times. 4.0 OBJECTIVE The objective of this research proposal on regulatory compliance and risk management in law firms are as follows: 4.1 To identify and address key risks in law firm operations.. Site accesssd on 23 December 2024. 5 Jye, K.J, & Jin, L.L.E (2014, June 1). Compliance Laws In Malaysia. Asian Legal Business. Retrieved from. Site accessed on 23 December 2024. 3  As a growing boutique firm, we wish to determine key risks in law firm operations involving systematically recognising potential threats related to personnel, processes, technology, and external events, and implementing proactive strategies to mitigate these risks to ensure efficient, compliant, and client-focused legal services. 4.2 To identify and bring to notice the measures provided by the Bar Council. This objective involves highlighting the initiatives and resources provided to enhance risk management practices among legal professionals, which aim to equip Bar Members with the necessary tools and knowledge for operational excellence and to foster trust and confidence in the legal profession. 4.3 To propose technological and structural advancements on enhancing corporate governance and risk management in law firms. With technological advancements, we aim to integrate innovative tools such as AI, data analytics, and electronic document management systems to streamline operations, improve decision-making processes, and foster accountability to ultimately ensure regulatory compliance and risk management. 5.0 METHODOLOGY The methodology used is the qualitative method of data collection: (1) interview and (2) research. The rationale for using the qualitative data method is (1) to gather practical data from law firms and to incorporate their ideas and perspectives into our research proposal and (2) to gain a fair understanding of the public perspective on the relevant issues. We interviewed Mr Chew Phye Keat from Raja, Darryl and Loh (RDL), Advocates and Solicitors. The interview was conducted in two parts: (1) Part A on regulatory compliance and risk management in Anti-Money Laundering (“AML”) and (2) Part B on applicability of corporate governance in law firms. 4  The interview lasted 2 hours. From the interview, we understood that the internal compliance and corporate governance of law firms are distinct from that of companies. Hence, focus must be given to Malaysian Bar Council guidelines and circulars. Since the interview, we have tailored our research accordingly. 6.0 PROBLEM STATEMENT ANALYSIS 6.1 Introduction on regulatory compliance and risk management Regulatory Compliance Regulatory compliance ensures organisations conduct their operations in a lawful, ethical, and socially responsible manner. This extends across a broad spectrum, including environmental protection, labor rights, data privacy, financial reporting, and consumer safety. Regulatory compliance has become an increasingly challenging responsibility for organizations operating at regional, national, and international levels,6 as it safeguards consumers, protects the environment, and promotes fair and transparent business practices.7 Therefore, regulatory compliance is not just a legal obligation but a strategic necessity for any organisation striving to thrive in today’s competitive and socially conscious markets. Risk Management Compliance with laws and regulations like the Legal Profession Act 1976 (“LPA”)8 and the Bar Council Rules are essential to avoid disciplinary actions, but they are only effective to an extent. Hence, regulatory compliance must be coupled with risk management. 6 (n.a) (n.d.). Regulatory compliance. MahWengKwai & Associates. Retrieved from.Site accessed on 20 Dec 2024 7 (n.a) (n.d.). Importance of regulatory compliance in corporate reputation. ComplianceQuest.Retrieved from Site accessed on 20 Dec 2024. 8 Legal Profession Act 1976 (Act 166) (Malaysia). 5  Risk management is a systematic process to identify, assess, and mitigate risks to an organization's assets, resources, and goals. It is essential in avoiding disciplinary proceedings and actions under the LPA. 6.2 Existing and evolving legislation on regulatory compliance and risk management. In this section, we will explore and critically analyse evolving and existing regulations for the purposes of regulatory compliance and risk management processes in law firms in Malaysia. Evolving Laws and Practices Law firms are created between persons with a common view of profit.9 They are either a partnership or sole proprietorship10 and do not possess the same structure as a company. Thus, a partner is wholly and jointly liable with other partners for the management of a 11 firm. With the partnership structure, there is a higher tendency for a partner to go bankrupt if one partner fails in his/her fiduciary duty.12 As a sign of evolution, the Bar Council has pushed for amendments to the LPA to the effect that law firms can function as limited liability partnerships.13 Until and unless the LPA is amended to allow law practitioners to open a firm that has a limited liability structure, internal governance amongst law firm members is at risk.14 9 Partnership Act 1961 (Act 135) (Malaysia), s 3. 10 Goh, H. (2022, Oct 6). The Legal Partnership Follies of Entry and Exit. Praktis. Retrieved from. Site accessed on 22 Dec 2024. 11 See footnote 9 above, s 6,7, 11. 12 See footnote 9 above, s 13. 13 Bar Council Malaysia. (2018, June 13). Circular No 157/218. Malaysianbar. Retrieved from. Site accessed on 22 Dec 2024. 14 Lee, S. (2015, Nov 6). Limited Liability Partnerships for Lawyers - A Long Wait. The Malaysian Lawyer. Retrieved from. Site accessed on 22 Dec 2024. 6  Therefore, as a way of moving forward, the Legal Profession (Amendment) Bill 2024 has been passed in Dewan Rakyat after the first three readings15 and proceeded for its reading in Dewan Negara.16 The proceeding reading was passed as well providing the possibility for law firms to be a limited liability law partnership under the LPA.17 Nevertheless, a law firm being a partnership or a sole proprietorship can still promote a better internal compliance and risk management culture within. This is evident through Bar Council’s numerous circulars and regulations to encourage law firms to consider improving the management of the firm with the increasing crisis attacks (scams, anti-money laundering, etc). Existing Laws and Practices Firstly, the Professional Indemnity Insurance (“PII”) scheme18 was introduced — by virtue of Section 78A of the LPA19 — a mandatory scheme for all lawyers. It insures lawyers in Peninsular Malaysia from civil liability arising from legal work, requiring a minimum Mandatory Limit of Indemnity of RM250,000.20 Claims of negligence, breach of duty, defamation, loss of documents or data, intellectual property infringement are some 15 Bar Council. (2024, Dec 9). Progress with Legal Profession (Amendment) Bill 2024, Circular No 423/2024. Malaysian Bar. Retrieved from. Site accessed on 23 Dec 2024. 16 Bernama. (2024, Dec 18). Dewan Negara passes five bills including the Legal Profession Amendment. New Straits Times. Retrieved from. Site accessed on 23 Dec 2024. 17 Malaysian Bar. (2024, Dec 6). Press Release, Legal Profession Act 1976 Amendment Bill on Track to Becoming Law. Malaysian Bar. Retrieved from. Site accessed on 23 Dec 2024. 18 (n.a) (n.d). Malaysian Bar Mandatory PII Scheme. Praktis. Retrieved from. Site accessed on 22 Dec 2024. 19 See to footnote 8 above, s78A. 20 (n.a) (n.d). Professional Indemnity Insurance for Law firms and lawyers. Marsh. Retrieved from. Site accessed on 22 Dec 2024. 7  areas that lawyers are insured under.21 This scheme is the most apparent law that law firms would benefit from due to the protection that it gets. Secondly, as per Section 79 of the LPA, every lawyer must submit an accountant’s report to the Secretary of the Malaysian Bar when applying for their annual practicing certificate (Sijil Annual), unless the Bar Council grants them an exemption.22 The accountant whilst complying with Accountant’s Report Rule 1990 must make known the status of the compliance of the firm with the financial rules and identify non-compliance if any.23 The form can be found under Rule 5, Bar Council Rulings and Practice Directions.24 Under Circular No 141/2023, the Bar Council recently discovered several Accountant’s Reports for Sijil Annual and Practicing Certificate (SAPC) 2022 applications were prepared by unqualified individuals.25 The possible extent of this issue is especially worrying given that investigations revealed that an unqualified person had prepared reports for 17 lawyers from eight firms. Members were asked to resubmit reports prepared by qualified accountants, as required by law. This substantially reflects an Advocate and Solicitor of a weak risk management governance and thus, compels best practices to be encouraged amongst law practitioners and law firms. Thirdly, Bar Council as a way forward to minimise risk management amongst law firms has conducted various workshops and the launching of ELEVATE is by far the biggest.26 It 21 Bar Council Malaysia. (2023, July 3). Professional Indemnity Insurance: Requirement to Make a Notification in the Event of a Chain. Malaysianbar. Retrieved from. Site accessed from 22 Dec 2024; Teh, D. (2023, Apr 13). What is Professional Indemnity Insurance? Cover Buddies. Retrieved from. Site accessed on 22 Dec 2024. 22 See footnote 8 above, s 79; Bar Council Malaysia. (2016, Sept 15). Sijil Annual 2017. Malaysian Bar. Retrieved from. Site accessed on 22 Dec 2024. 23 Accountant’s Rules 1990 (P.U.(A) 302/90) (Malaysia), rule 4. 24 (n.a) (n.d). Schedule (Rule 5) Form of Accountant’s Report. Malaysian Bar. Retrieved from. Site accessed on 23 Dec 2024. 25 Praktis. (2023, May 15). Accountant’s Report Prepared by Unqualified Persons. Praktis. Retrieved from. Site accessed on 22 Dec 2024. 26 The Kuala Lumpur Bar. (2023, March 6). KLBC Circular No. 022/2023, Malaysian Bar’s Risk Management Initiative. KLbar. Retrieved from. Site accessed on 22 Dec 2024. 8  is the official risk management programme from the Malaysian Bar to enhance awareness of the risks in legal practice among Members, promote implementation of risk management efforts and subsequently produce a dynamic legal service. It helps lawyers manage their operations, finances, files, and clients. By enhancing risk management, law firms can deliver better services and meet industry standards.27 In terms of Confidentiality and Cyber Security In Malaysia, client confidentiality is stringently upheld through various legislations. Rule 35 of the Legal Profession (Practice and Etiquette) Rules 1978 (“LPR”) establishes that the duty of confidentiality persists even after the conclusion of their professional engagement, and hence advocates and solicitors are prohibited from utilising any confidential information obtained during the course of employment.28 This is also apparent in the Evidence Act 1950, which states that this obligation is not contingent on their awareness of confidentiality or its implications.29 To reflect this, Circular No 238/2023 introduced a Code of Practice for Advocates and Solicitors to lay out the criterias that law firms should note when handling client’s personal data30 as defined under Personal Data Protection Act 2010 (“PDPA”), which means name, IC number, passport number, driver’s license, birth certificate, bank account numbers, home address, personal phone no of the person.31 There are 4 data protection principles under PDPA32 that are relevant to this article - Security, Data Integrity, Disclosure, and Retention. 27 Bar Council Risk Management Committee. (2024, March 25). Risk Management and Indemnity Monthly Newsletter, Elevate. Malaysian Bar. Retrieved from. Site accessed on 22 Dec 2024. 28 Legal Profession (Practice and Etiquette) Rules 1978 (Malaysia), rule 35. 29 Evidence Act 1950 (Act 56) (Malaysia), s 126(2). 30 Bar Council Malaysia. (2023, Sept 4). Invitation to Provide Feedback on the Draft Code of Practice for Advocates and Solicitors Regarding Personal Data. Malaysian Bar. Retrieved from. Site accessed on 22 Dec 2024; Bar Council Malaysia. (2024, June 27). Progress Update on Code of Practice for Advocates and Solicitors, Circular No 179/2924. Malaysian Bar. Retrieved from. Site accessed on 22 Dec 2024. 31 Personal Data Protection Act 2010 (Act 709) (Malaysia), s 4. 32 See footnote 31 above, Part II Personal Data Protection Division 1, Personal Data Protection Principle. 9  In the context of this article, the Security principle provides that law firms are expected to employ a sufficiently guaranteed data processor and a security policy that complies with the security standard set out by the PDP Commissioner.33 To focus on how law firms can aid in this process, the Bar Council has recommended a few measures, including: 1. Training employees to handle personal data responsibly and to execute confidentiality agreements; 2. Enforcing policies that penalise violations; 3. Restricting the access and management of confidential data to authorised staff; 4. Labelling confidential documents as “Private & Confidential”; and 5. Double checking recipient’s details (email addresses) to prevent data leaks. The Data Integrity principle provides that law firms must ensure the data processed is accurate, complete, and up to date.34 The Disclosure principle explains that law firms are only authorised to disclose personal data in the reasonable belief that it had, in law, the right to disclose such data to others.35 The Retention principle illustrates the obligation of a law firm to address its retention policy of files, documents and personal data of a client.36 This retention policy must follow the relevant laws such as the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (“AMLA”), which will be explained later, and the Income Tax Act 1967.37 Retention does not merely mean that data should be kept as long as possible. The Bar Council has provided clear guidelines on the period that files can be retained for various disputes.38 Any time frame that extends beyond the provided period requires demonstration 33 See footnote 30 above. 34 See footnote 30 above. 35 See footnote 31 above, s 39. 36 See footnote 30 above. 37 Income Tax Act 1967 (Act 53) (Malaysia), s 82 (1)(a). 38 Malaysian Bar. (2019). Bar Council Rules and Rulings, rule 18.01. Malaysian Bar.Retrieved from