Legal client intake: How AI is helping firms do better

_{Nick Morgan, Head of Legal Professionals • April 18 2024}

A recent investigation by the Solicitors Regulation Authority (SRA) found a shocking number of law firms weren’t compliant with AML rules. In the first quarter of 2024 alone, the SRA made over ten decisions on AML breaches, resulting in fines of up to £170,000. These cases are connected by a common thread: the law firms being fined didn’t conduct thorough due diligence on clients and third parties. Some didn’t check funds from other jurisdictions or conduct Enhanced Due Diligence despite red flags being present. Others accepted funds without due diligence being completed first. In this blog, we’ll explain how AI can improve your client intake process for stronger risk management and compliance.

TL;DR

Larger fines and regulatory expectations are putting significant pressure on compliance teams who are already stretched thin. There’s now an urgency for firms to improve their due diligence practices, taking into account not just AML and financial crime risks but also reputational risks.

Despite the amount of online information available, many firms still rely on manual due diligence processes, resulting in delays, inconsistencies, and missed red flags. The manual approach is further complicated by the sheer volume of data, leaving compliance analysts struggling to keep up.

By using AI tools like Xapien, which searches various sources including compliance datasets, corporate records, and open source content, firms can conduct comprehensive risk assessments in under 10 minutes. This allows compliance teams to meet the demands of business intake while demonstrating the depth of their due diligence to the regulator.

Infinite information, finite time

In many firms today, due diligence remains a manual process, causing client onboarding and communication delays. Alternatively, it’s rushed, leading to inconsistency and missed red flags. The abundance of online information has made the manual approach even more complex, especially for research analysts in compliance teams already at capacity.

These fines highlight the tension that compliance teams are under. They face increased regulatory expectations while already stretched thin, and pressure mounts as other firms are fined for inadequate due diligence. Managing risks has also become more complex, particularly in the client intake process, where firms must consider not only AML and financial crime risks but also reputational risks.

With limited time, they often rely on basic database checks and cursory web searches for client backgrounds. However, this approach isn’t sufficient anymore. With the right tools, firms can improve their due diligence practices and meet the SRA’s expectations.

Client intake raises legal and ethical questions

In this climate, law firms need to gather as much information as possible about potential clients to ensure a legal and ethical fit. They must determine not only if clients have been sanctioned or are politically exposed but also if they could potentially face sanctions or have close ties to other entities that are. 

Lawyers dealing with global clients must consider that various countries are subject to different sanction lists, and many businesses with global supply chains operate internationally to some extent. Identifying the lists law firms must comply with is a challenge. Identifying those they should be aware of is even more difficult. 

Our Natural Language Processing identifies key networks and affiliations that enable lawyers to to stay ahead, and detect who is likely to be added to the sanctions lists in advance of it happening. For example, someone might not be directly sanctioned but could be mentioned in media articles as a ‘close friend’ of a sanctioned figure. Traditional sanctions checks would not flag these risks.

Automated upfront due diligence

Automating the due diligence process is crucial for compliance teams to meet demand from the business intake team while demonstrating to the SRA the depth of their due diligence. Fundamentally, the firm should understand their clients’ backgrounds well enough to detect any potential abnormalities in the future.

Firms are starting to recognise the importance of Initial Due Diligence (IDD) in shaping client analysis. In cases where clients have an ambiguous profile, analysts can determine where they need a more thorough investigation. Conversely, analysts can identify low-risk clients and expedite them through the firm to quickly start matter work.

Xapien is an automated research tool that generates a research report on individuals and companies by screening compliance databases and cross-referencing that information with context from news and media articles, corporate records, and various internet sources like LinkedIn, Wikileaks, offshore leaks, and others. 

It then produces a summarised due diligence report in under 10 minutes, providing a comprehensive upfront risk assessment for every potential client.

Balancing compliance with depth of research

Introducing AI to the client intake process equips lawyers with the full picture of their client, so they can make fully-informed decisions. Research teams, even when equipped with database and search engine tools, simply cannot match the power of AI.

When Xapien is used for client intake, speed increases, manual inaccuracies are removed, and lawyers gain a deep understanding of potential clients’ reputations, backgrounds and objectives. This helps them build better relationships with those clients. AI is fast becoming essential for any law firms looking to maintain effective compliance and new business intake processes.

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