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Mergers and data protection concerns among the key trends affecting Scottish law firms

Mergers and data protection concerns among the key trends affecting Scottish law firms


2017 has been a year of transition for legal practitioners in Scotland as they continue to battle an uncertain economy, evolving regulations and clients' rising demands for value-added services.

Wesleyan Bank has identified the following five trends which are most likely to impact law firms' growth plans over the next 12 months. The company will be discussing these challenges and how tailored finance solutions can help firms to boost cash flow and take advantage of new technology on its stand at this year's Law Society of Scotland Conference (19th September 2017, Edinburgh Conference Centre).

Cybercrime

The number of cyber-security incidents impacting law firms has increased by 28% in the last two years alone [1] and almost half (42%) of Scottish solicitors consider this escalating security threat as their biggest technological challenge.

Despite expressing their concerns, it would appear that many legal practitioners are burying their heads in the sand when it comes to proactively addressing issues surrounding data security. This is evidenced by fewer companies performing a General Data Protection Regulation (GDPR) assessment this year compared to 2016.

General Data Protection Regulation (GDPR)

Working in accordance with the GDPR will become mandatory from 25 May 2018. The new legislation is being introduced to harmonise data privacy laws throughout Europe and will replace the existing EC Data Protection Directive.

Law firms face stricter controls over how they collect and store personal data and tougher fines in the event of data breaches, which could be potentially catastrophic for their firm's reputation as well as that of their clients.

To effectively prepare for the GDPR, law firms should undertake a data privacy impact assessment to ensure they are fully compliant. In the event of any weaknesses to IT systems and infrastructure being discovered prevention is often better than cure to mitigate the risk of falling victim to cybercrime.

Bespoke and unsecured loans from specialist finance providers enable law firms to spread the cost of investing in advanced security software and awareness training for their staff. Additionally specialist finance solution providers, including Wesleyan's General Insurance division, offer cyber insurance covering loss in the event of a data breach. Premiums for these insurances can also be paid over time using finance.

Innovation in Technology

According to research, 30% of law firms in Scotland admit they struggle to keep up with the cost of new software systems and training. Failing to invest in technology can result in a loss of productivity and an inability to meet rising client expectations with half of the survey's respondents claiming that routine tasks take them longer than they should to complete [2].

Modern technological innovations, such as Artificial Intelligence (AI), can transform efficiency and strengthen a firm's competitive advantage. A recent use of AI is Technology Aided Review (TAR). This predictive coding software can analyse hundreds of thousands of disclosure documents to speed up the time it takes to review a case, providing law firms with significant efficiency savings.

Fortunately, the speed of technological innovation does not have to be a barrier for law firms who wish to compete with bigger rivals. Flexible and tailored asset finance solutions from trusted specialists, such as Wesleyan Bank, allow the cost of IT investments to be spread over a period from one to five years and cover software, hardware and associated implementation, maintenance and support costs.

This ensures ambitious law firms can quickly adopt emerging technologies without impacting their cash flow by purchasing new assets upfront which could soon become outdated.

Brexit

The potential impact of Brexit is at front of mind for many Scottish solicitors according to research carried out by Ipsos MORI for the Law Society of Scotland [3]. Although only 12% of SMEs are feeling concerned about their business prospects as a result of the EU referendum, 44% of younger SME owners are still planning to increase the amount of cash held in their firm [4].

Many Scottish businesses expect Brexit to have a negative impact on the Scottish economy [5] and understandably law firms may be cautious about making additional investments when experiencing rising operating costs and fluctuations in their cash flow. In this instance, they should consider flexible, short-term working capital solutions from a trusted financial provider to spread the cost of tax and VAT liabilities.

Mergers and acquisitions

The legal sector is currently buoyant as it continues to recover following the impact of the global financial crisis, with most firms seeing an increase in net profits of between 2%-5%, their highest in five years.

However, growth rates are strongest in firms of more than five equity partners, and firms of more than 25 partners have grown over the last three years at rates of 19%, 27% and 20% respectively [6].

As the trend in recent years towards mergers in mid-tier to large firms has continued, many firms are seeking long-term financial support and advice from experienced lenders to help their practice to grow and achieve their ambitions.

Trusted finance providers, such as Wesleyan Bank, possess specialist knowledge and experience of working with the legal sector and can tailor partner equity and practice acquisition finance solutions to suit individual requirements to ensure a smooth and seamless process.

Works Cited

[1]  PwC, "Law Firms' Survey 2016 Risk Management,"
[2]  Law Society of Scotland, "Technology Survey Report,"
[3]  Timetric, "Developments in Cyberinsurance,"
[4]  Wesleyan Bank, "SME Attitudes to Finance 2017,"
[5]  The Scotish Parliament, "Brexit - What Scotland thinks: summary of evidence and emerging issues,"
[6]  MHA, "Legal Benchmarking,"

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Wesleyan Assurance Society and Wesleyan Bank Ltd are authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Wesleyan Financial Services Ltd, Wesleyan Unit Trust Managers Ltd, Practice Plan Ltd and DPAS Ltd are authorised and regulated by the Financial Conduct Authority.  Advice about investments, insurance and mortgages is provided by Wesleyan Financial Services Ltd.

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