Increased Compliance Burdens Are Leading to the Establishment of More Legal Process Outsourcing Firms

Legal Process Outsourcing (LPO) services are becoming quite popular these days. One reason behind this is the increase in the number of statutory compliances for corporate organizations.

Lack of transparency and regulation has been identified as one of the factors that engendered the recession which in turn shook the roots of the American economy. Authorities have responded to this by making it mandatory for important financial institutions to maintain certain records to increase transparency. It is perceived that these measures will reduce the chances of another recession hitting the market.

Regulatory requirements

Those who have been keeping a tab on developments in this field will know that private equity advisers and hedge funds have to register their firms with the U.S. Securities and Exchange Commission and reveal their books to regulators. Depository institutions will be subject to the bank holding regulations issued by the Federal Reserve Bank. Moreover, the Office of Thrift Supervision (which was the regulator of institutions like IndyMac Bancorp Inc., Washington Mutual Inc., and American International Group Inc.), will be made a part of the Office of the Comptroller of the Currency. Companies that issue mortgages would be required to retain a minimum of 5% of these on their books to discourage improper loans. The new Consumer Financial Protection Agency will have SEC authority and regulatory authority. This agency will ensure that entities which create consumer debt disclose more information.  

Apart from recession related issues, energy and healthcare reforms will also impose more compliance burdens on organizations related to those sectors.

Some people argue that these regulations have been imposed to make sure that no institution becomes too big. However, everyone agrees that such regulations will increase legal spending across all corporate organizations.   

Advantages of appointing LPO service providers

It is natural that firms will try to outsource as much work as possible because they are already cash strapped.  Even the American Bar Association approves legal process outsourcing. The LPO industry is useful for small and medium sized businesses because such organizations find it more difficult to deal with the compliance burden. This is the only way in which they can compete with larger firms within and outside America.

Not only can such firms provide routine, low end legal services, they can also offer services like drafting and reviewing privilege logs, drafting case chronologies, conducting contract analysis, putting together witness binders, drafting head notes & case summaries, and conducting research at the global or multi-state level.

The LPO industry is already quite developed and firms have the advantage of studying partnership models that have worked. Establishing long term relationships with firms that offer legal services from foreign locations is more cost effective because it allows for longer training periods and enables setting up of compliance tracking teams.

Some companies are concerned about the degree of confidentiality and data protection issues in legal process outsourcing firms. However, this should not be a concern because these firms adhere to the standards accepted in USA or UK.

On the whole, LPO seems to be the best option for law firms and corporate bodies because two birds are killed with the same stone: the cumbersome legal requirements are met and expenses are kept low.