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MortgagePoint ยป Your Trusted Source for Mortgage Banking and Servicing News 28 June 2025 F E A T U R E S T O R Y THE RISING COST OF COMPLIANCE: HOW IT, SECURITY, AND INSURANCE REQUIREMENTS IMPACT DIVERSE AND WOMEN-OWNED FIRMS With insurance growing as a critical risk management tool, the premiums for these policies are becoming an expensive obstacle for many smaller firms. B y L I N D S A Y D . D R AG O N E S Q . I n recent years, large corpora- tions have increasingly imposed stringent information technolo- gy (IT), security, and insurance requirements on their outside legal counsel. These requirements, designed to protect sensitive data and ensure compliance with evolving regulatory standards, are non-negotiable for many clients in today's highly scrutinized business environment. However, these same requirements can pose significant financial and operational challenges for smaller, diverse, and women-owned law firms, creating a barrier to entry that runs counter to the corporation's diversity and inclusion goals. The Impact on Smaller Firms M any corporations now require their outside counsel to maintain robust IT systems that meet specific cybersecurity standards. These may include implementing advanced en- cryption, multifactor authentication, fre- quent system audits, and real-time data breach monitoring. While these proto- cols are essential for protecting both the client's and the law firm's confidential information, they come with substantial financial and technical burdens. Small- er firms, especially those that have not previously had the resources or infra- structure to invest in such systems, often face significant challenges in complying with these demands. In addition to IT and security measures, corporate clients require their outside counsel to carry a variety of insur- ance policies, including professional lia- bility insurance, cyber liability insurance, and general liability insurance. These insurance policies are designed to protect both the client and the law firm in case of errors, data breaches, or other unforeseen incidents. Smaller firms, which typically have lower policy limits with affordable premiums, are now being required to obtain larger policies with higher premi- ums. Thus, while insurance is a critical risk management tool, the premiums for such policies pose an expensive obstacle for smaller firms. Many of these smaller law firms emphasize diversity and inclusion. For these firms, the cost of meeting these heightened IT, security and insurance standards can be costly. Small law practices, which are already operating with limited margins, may struggle to cover the initial capital outlay required for security upgrades and to maintain compliance with ongoing monitor- ing and auditing requirements. The ongoing maintenance and insurance costs related to these requirements further compound this financial strain, creating a situation where the economic demands of compliance outweigh the ability of smaller firms to compete for major corporate contracts. As a result, diverse law firms may be excluded from major corporate engagements despite their qualifications and commitment to high-quality legal services, which un- dermines corporate efforts to promote diversity and inclusion. Diversity and Inclusion Goals vs. Practical Barriers T he gap between diversity goals and practical barriers is widening as large corporations increasingly require compliance with stringent IT, security, L I N D S A Y D . D R A G O N is a Senior Associate Attorney at Wright, Finlay & Zak's Nevada office. She may be reached by email at ldragon@wrightlegal.net.