London, United Kingdom — A recent report has revealed that more than half of legal firms in the UK are ill-prepared for a new offense aimed at preventing fraud, which goes into effect under The Economic Crime and Corporate Transparency Act (ECCTA) in September. The findings from compliance training provider Skillcast indicate that the legal sector is among the least equipped industries to handle this regulatory change.
The analysis included data from 2,000 private limited companies across ten sectors. It focused on factors related to governance, compliance, and transparency, highlighting significant vulnerabilities in these areas. With the new regulations imminent, the report warned that many firms face increased risks of prosecution, reputational harm, and intensified regulatory scrutiny.
Skillcast’s examination utilized publicly available information from Companies House to assess various compliance indicators, including ownership transparency, filing behavior, and the patterns of directors in these companies. The overall scores indicated that the legal sector, with a rating of just 605 out of 1,200, is the third least prepared for the new legislation.
The report also noted alarming compliance gaps within the legal industry. More than half of the analyzed law firms either did not properly identify a person with significant control (PSC) or incorrectly designated their PSC, thereby violating the transparency requirements set out by the ECCTA. Such oversights leave these firms vulnerable to legal challenges.
Moreover, the legal sector demonstrated the highest rate of governance instability, with firms averaging 19 changes in directorship since their incorporation. This frequency of turnover raises concerns about the effectiveness of compliance oversight, according to Skillcast.
In contrast, the financial services industry ranked as the least prepared, with a score of just 453.4 out of 1,200. Sectors that were better positioned include technology, property and real estate, and construction, which were deemed to have taken substantial measures to align with the upcoming regulations.
Vivek Dodd, CEO of Skillcast, emphasized the critical implications of the ECCTA. He noted that large organizations are required to demonstrate precise procedures to mitigate fraud risks, which extend beyond merely having policies documented. Firms need to conduct thorough risk assessments and ensure that fraud prevention measures are integrated into daily operations.
Dodd described the report’s findings as an urgent call to action for the legal sector. He warned that with less than three months until the enforcement of the new corporate fraud prevention requirements, many firms are operating under conditions that may expose them to serious legal liabilities. He pointed out that while some sectors are actively reinforcing their governance structures, the legal industry is lagging behind.
“[The legal sector’s situation] poses a serious threat to their reputations and financial stability,” Dodd explained. He stressed the necessity for enhanced governance, diligent oversight, and comprehensive fraud prevention training across legal firms.
As the deadline approaches for compliance, the report serves as a cautionary message for law firms to address these vulnerabilities before facing potential regulatory penalties.
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