Hello and welcome to the Fides Weekly Update. Take a look at this week’s key trends, moves and developments in legal and compliance.
We are delighted to announce that we will be welcoming our first work experience placement next week. The student will be joining us from Westminster Kingsway College for the week and was sent to us by our partnered charity Fitzrovia Youth in Action (FYA).
For nearly 20 years FYA has been supporting disadvantaged children and young people to overcome the barriers they face in everyday life. Since FYA’s formation they have supported over 5,000 young people through youth volunteering, outreach work and employability programmes; helped young people gain over 900 AQA qualifications and organised over 100 community events including street parties, healthy living festivals, football tournaments, inter-generational programmes, film showcases and community events.
For more information on Fides’ CSR strategy and what you can do to get involved with our charity partner please contact gopi@fidessearch.com
Tweet us @Fides_Search to let us know your thoughts.
1. CMS, Nabarro and Olswang merger begins to take shape
CMS, Nabarro and Olswang get closer to becoming the new global mega-firm as the latest news surrounding the merger this week reveals that Nabarro is dropping out of its European alliance.
Nabarro will be withdrawing from their European alliance Broadlaw Group as it commits fully to the three-way tie-up with CMS Cameron McKenna and Olswang. The Broadlaw Group features a number of well-established European firms, such as Germany’s GSK Stockman + Kollegen and France’s Lefevre Pelletier & Associes. Nabarro, however, will soon have access to CMS’s extensive European network, which would include CMS Hasche Sigle in Germany and CMS Francis Lefebvre in France.
Various details of the merger have been revealed so far, most significantly that the firms have all voted in favour of sitting under the CMS brand as it was announced the new firm will be called CMS Cameron McKenna Nabarro Olswang LLP.
This firm is expected to house over 1,000 partners and generate revenues of £450m in the UK, €1.2bn globally and will rank as the sixth largest law firm by headcount.
Whilst there has been a confirmation of the three-way merger, there still remains a lot for the law firms to work out. We have heard some speculation in the news around where the merged firm will be based, with The Lawyer commenting that CMS’s Canon Place office will be put up for sale following the merger, but will move in Nabarro and Olswang’s teams into the two vacant floors at their London HQ for the time being.
The firms will also need to consolidate their support services and review how they can best integrate all three business support functions. Legal Week posted this week that the result of this will most likely lead to job losses as it did when CMS merged with Scottish firm Dundas & Wilson. Combining those two firms led to a cull of 60 support roles whereas, this merger involves a much greater number of support staff. According to Legal Week: “CMS has 269 UK-based support staff out of total of more than 2,000 across the global CMS network. Nabarro has 118 support staff in London and 313 across the entire firm, while Olswang has 200 in London out of a global total of 263.”
Law firm mergers are undoubtedly a high-risk move, with many firms struggling with integration and breeding a consistent, coherent firm culture. However, if successful, the merger will unlock a wealth of opportunities for the new entity and those working within it.
For Olswang, the benefits of the merger will be in broadening their platform and offering partners a greater spectrum of deals to work on. Olswang have been struggling with partner exits over the last year and the merger is a much needed incentive for their partners to work bigger transactions and get on more client panels.
CMS are already seeing the benefits of the deal. The firm has previously suggested that they would be open to a transatlantic tie-up and the scope of this upcoming merger has already made them more noticeable to their US counterparts and will give the new firm more power when entering discussions with US peers. This week brought rumours that US outfit Hunton & Williams is in talks with CMS, Nabarro and Olswang about a further tie-up with the Virginia-based firm. The Lawyer reported the firms are in “late-stage merger talks”, which could see a four rather than three-way tie-up taking place by May 2017. If Hunton & Williams did manage to join the party, there could well be a comfortable fit given their heavy US presence and smaller international offering meaning the local integration in London, Brussels and Asia might be easier. However the global integration both physically and culturally of these three, or indeed four firms is a challenge that will only become more visible in time.
2. Incoming MiFID II rules to hit asset manager profits
A report has suggested that the research unbundling rules coming into force under MiFID II could cut asset manager profits by as much as 29 per cent.
Global research firm Crisil, a subsidiary of S&P Global, presented a report that examined the effect that new rules about research costs will have on asset managers. At present, investors are often charged research and execution costs together and haven’t previously been required to disclose a breakdown of these costings. Under upcoming MiFID II rules, asset managers will need to either absorb the research costs or set up a research payment account (RPA), which will involve additional disclosure, budgeting, reporting and auditing.
Woodford Investment Management is one of the first firms to unveil their plans for abiding by these new regulations. The firm is expected to absorb research costs and has committed to stop charging investors for research by April 2017.
Most firms are likely to take the same strategy as Woodford as the conditions of setting up an RPA are fairly long-winded. With this in mind, Crisil’s report suggests that, depending on what percentage of assets are exposed to equities, asset managers could anticipate operating profits to be hit from anywhere between 17 to 29 per cent.
These changes are predicted to lower costs for investors, and given the complexities of abiding by different regulations across jurisdictions, the US are likely to introduce similar research unbundling rules once MiFID II has been implemented in Europe.
MiFID II still carries uncertainties over key requirements under the regime. The 12 month delay that pushed the implementation date back to January 2018 has eased pressures slightly, but there continues to be questions surrounding the details of the regulation and indeed how the changes will affect asset managers and their business models. Research costs is only one requirement of the new regime that could result in lower profits and it remains to be seen to what extent MiFID II will impact on their bottom line.
Movers & Shakers of the week
Appointments
Bird & Bird appoints new head of consulting arm
Edoardo Monopoli will take on the position of CEO at Baseline, Bird & Bird’s consulting business, replacing Dominic Cook who left the firm August
KWM appoints new European senior partner
Michael Cziesla has been appointed the first non-London EUME senior partner for King & Wood Mallesons after Stephen Kon’s unexpected resignation last month
Moves
W&C boosts European banking offering
White & Case has hired former Ashurst banking partner Gianluca Fanti in Milan
A&O add to London finance team with hire from HSF
Nick Bradbury will be leaving Herbert Smith Freehills to join Allen & Overy as a partner in their financial services regulatory team in London.
Ropes & Gray also gains partner from HSF in London
Debt finance expert Malcolm Hitching is set to join Ropes & Gray from Herbert Smith Freehills as a partner in their London banking practice
Addleshaws loses incentives head
Employment incentives head Michael Carter leaves Addleshaw Goddard to join Osborne Clarke’s incentives and wider tax practice
Bakers makes 10-lawyer team hire in Switzerland
Baker & McKenzie sees a team of five partners and five associates join their Swiss office from Floriep. The partners joining are Beat Barthold, Pascal Richard, Ansgar Schott, Boris Wenger and Alessandro Celli
Osborne Clarke loses COO after nine months in the role
First ever COO for Osborne Clarke Claire Binyon has left the firm after nine months
Office Openings & Closings
Latham to open in South Korea
Latham & Watkins have been granted a licence to open a foreign legal consultant office in Seoul
Mergers & Alliances
Hello and welcome to the Fides Weekly Update. Take a look at this week’s key trends, moves and developments in legal and compliance.
Follow us on Linkedin for daily market updates
This week:
1. Bank and MLRO fined for SMR and AML failings
Bangladesh’s largest bank was hit with a multi-million pound fine this week for serious AML failures at its UK arm.
The Financial Conduct Authority (FCA) demonstrated to the industry their refusal to accept weaknesses in AML policies, state-owned institution Sonali Bank was fined £3.3m and prevented from accepting new deposits for five and a half months, a rare enforcement act to be implemented by the regulator. The bank’s money laundering reporting officer (MLRO) Steven Smith has also received a penalty of £17,900.
The FCA released a statement that claimed they found “serious and systemic weaknesses [that] affected almost all levels of its AML control and governance structure.” The Bangladeshi bank had previously received clear warnings about these shortcomings, which persisted from 2010 to 2014, and failed to follow the recommended steps provided by the FCA.
This case highlights the importance to all financial institutions of maintaining oversight of all branches and ensuring systems and controls follow requirements sufficiently. The FCA further argued that they have set well-defined obligations to abide by when it comes to AML policies and procedures and therefore expect all regulated firms to be effective in enforcing these.
Amongst the consequences of these failings are the penalties faced by Sonali Bank’s MLRO Steven Smith. Smith will receive not only a £17,900 fine, but has also been restricted from taking on another MLRO role or further performing any compliance oversight functions. Although the regulator has revealed that Smith was ‘unsupported and overworked’, the FCA’s emphasis on the accountability of senior managers stipulates that the numerous failures to escalate and report concerns in areas for which he was responsible is his personal wrongdoing.
Combating money laundering is a significant objective for the FCA and they intend to crackdown on any institution who fails to comply with the requirements. With senior management accountability measures in full force, there lies serious reason to ensure that financial crime compliance is met and any weaknesses swiftly identified.
2. Lloyd’s Banking Group cuts panel
Lloyds Banking Group has finalised its UK legal panel review, cutting core panel firms from ten to eight with DLA Piper and Norton Rose Fulbright losing their places on the roster.
Led by Group general counsel Kate Cheetham, existing panel firms CMS Cameron McKenna, Eversheds, Herbert Smith Freehills, Hogan Lovells, Linklaters, Allen & Overy, Ashurst and Addleshaw Goddard have retained their places on the bank’s panel.
As a Lloyds spokesperson said: “Following a rigorous and competitive tender process, we have finalised the list of the group’s legal core panel. The panel will include eight firms which have been designated ‘core’ as they are able to offer either alternative resourcing options, technology solutions and/or the ability to offer a wide range of complex legal advice.”
Legal Business revealed in February that Lloyds was planning to review its core advisers, with the expectation that the panel would reduce in size.The bank last conducted a full panel review in August 2014, and is expected to unveil its 16 UK sub-panels later this year.
A ‘robust’ tender according to partners familiar with the process, there was a strong focus by the bank on pricing via hourly rate as firm’s submitted quotes via reverse auction.
This follows widespread legal restructuring at Barclays, who reduced the total amount of law firms it worked with by 60% in July. In a more holistic approach to the tendering process, law firms were assessed on their ability to collaborate and innovate with an overarching goal to cut costs for Barclays.
In the face of harsh cost cutting measures, with Lloyds revealing another 1,340 job losses this week under its restructuring programme, it has never been more critical for tendering firms to be flexible on pricing, resources and delivery of service through technology.
With regulatory uncertainty surrounding Brexit and ring-fencing reforms assuring the bank’s need for high-quality external legal advice, what has been made clear from the panel reviews conducted at Lloyds and Barclays is that legal expertise is now considered by clients as a given, and not enough alone to justify inclusion on their panel.
As such, the challenge on law firms is now to adapt and better articulate how they provide value to clients through their services – whether this be through fixed pricing, technological solutions or flexible resourcing.
Movers & Shakers of the week:
Appointments:
Eversheds duo in line for key management roles
Keith Froud is set to be appointed managing partner, whilst Ian Gray is stepping into a leadership role relating to clients in ‘tripartite leadership’ under new chief executive Lee Ranson
New London managing partner appointed at Morgan Lewis & Bockius
Frances Murphy appointed as new London managing partner replacing Peter Sharp
Moves:
White & Case boosts regulatory offering with hire from BNY Mellon
James Greig, EMEA Regulatory Counsel and Head of the Office of Public Policy and Regulatory Affairs at BNY Mellon joins White & Case in London
Winston & Strawn hires Middle East M&A heavyweight from White & Case
Campbell Steedman joins Winston & Strawn to head Middle East office
Simmons & Simmons strengthens real estate practice with hire from DLA
Richard Hopkinson-Woolley joins Simmons & Simmons real estate team in London
CC’s global co-head of banking joins White & Case
Patrick Sarch, global banking co-head at Clifford Chance has joined White & Case in London
Sherman Brussels competition partner quits to launch boutique after Quinn talks
Trevor Soames has left Sherman’s to start his own boutique after it emerged that he was in talks with fellow competition partners to join Quinn Emanuel Urquhart & Sullivan
Quinn Emanuel strikes in Paris with Allen & Overy and HSF hires
Michael Young, global co-head of arbitration at A&O and Isabelle Michou, head of Paris disputes at Herbert Smith Freehills join Quinn’s dispute resolution practice in Paris
Office Openings & Closings:
Specialist real estate planning boutique launched by partners from Herbert Smith Freehills, KWM and Gowling WLG
Planning partners Simon Ricketts (KWM), Patrick Robinson (HSF) and Clare Fielding (Gowling WLG) are teaming up with planning barrister Mary Cook (Cornerstone Barristers) to launch new firm
Partner Promotions
White & Case makes up eight London partners in 40-strong global promotions round
Support. We all need it, one way or another, but within Compliance it is one of the key requirements we hear most often. Sometimes there is a lack of it, but in recent times and especially now as we face an uncertain “de-coupling” from the European Union the benefits of support hold great significance and power. We feel a solid support structure underpins a successful workforce, allowing how we as individuals and as an industry can maximise the opportunities available, affect change within an organisation and ultimately be successful.
But how does that feeling of support become such a tangible commodity? Prior to the 2008 financial crash, it’s fair to say that the role of a Compliance Officer and its relevance within an organisation received insufficient support and purely existed as a necessary evil. As the industry became embattled in market turmoil, significant breaches of wrongdoing and the huge swathes of regulatory reform were rolled out, that same compliance function became a vital asset, there to guide and support the business and protect its integrity.
For a compliance function, or in fact any function of a global business to be successful in driving change, support must begin at the very top. The Chairman and Board of Directors set a tone and culture that permeates through the business and which for an effective compliance function is imperative. An institution could have the most capable and experienced compliance team in the market but without the support to drive change, culture and strategy, in accordance with an increasingly severe policing by the FCA, its efforts are useless.
But there are two sides to every coin and a Compliance Officer shouldn’t and indeed in most cases doesn’t rely solely on senior management to set the tone – the compliance function is also responsible for driving the risk appetite and its culture. In some cases, educating senior leading figures in the necessary direction of its risk governance framework to remain on the right side of the law is necessary. The Compliance Officer 2.0 is a forward thinking, commercial, collaborative individual who understands the business front to back, its stakeholders and how best to train and educate them in an inclusive way. This ethos will breed a collegiate and supportive culture and break down traditional barriers and reticence to engage.
An unstable macro market and heavy regulation has meant that the bull market trading days and free reign front office we’re accustomed to have been confined to the history books. This has created a trend of business side individuals transitioning in to compliance, turning from poacher to game-keeper and further establishing and strengthening this “bridging the gap” between the business and its compliance workforce. We see this cross-pollination from other teams such as audit, risk, and legal further enhancing and supporting the overall aim of the compliance team.
As change has now become the new norm, constant support is necessary as the volume and pace of regulatory change remains substantial, the demands of internal compliance resource will be stretched and over-worked. With a dearth of talent and numbers in the hiring market, support of the current team is essential in allowing all areas of any institution to be effective. At Fides Search we are constantly asking ourselves how we can support our clients and each other within the business as we work in uncertain times, but also times of new growth and opportunity.
We would be delighted to hear your comments and thoughts around this topic – if you would like to discuss further, please contact author Barrie Lee at blee@fidessearch.com.
Hello and welcome to the Fides Weekly Update. Take a look at this week’s key trends, moves and developments in legal and compliance.
Why not follow us on Linkedin for regular market updates?
This week:
1. Celebration for Innovation
This week saw a celebration of innovation in the legal press as the FT announced the 2016 winners of its Innovative Lawyers Awards and Reed Smith launched a first of its kind innovation hub to encourage collaboration with clients.
Launched in 2006, the FT Innovative Lawyers Awards assesses law firms on both innovation for clients and within their own business models, emphasising what the users of legal services want and need to know to successfully navigate today’s dynamic business environment.
Those firms ranked as the most innovative in Europe were scored for both legal expertise and the business of law, which were benchmarked against other submissions to arrive at the final rankings.
These celebrations followed the launch of Reed Smith’s Innovation Hub earlier in the week, with a dedicated 538sq ft ‘thinking space’ in the City where clients can meet and collaborate with the firm on projects they deem important.
Headed by recently appointed Innovation Manager Alex Smith, the firm will also work internationally with clients to develop technology that cuts costs and enhances legal services.
The need for innovation across the legal sector is broadly accepted, with firms forced to adapt to satisfy greater internal and external drivers for change. Here, a marketplace characterised by greater client demand for value and increased competition on pricing by ABS firms, meets generational challenges for firms to offer a more favourable working environment to retain top talent.
As such, firms have sought to develop technology, flexible working practices and more efficient operating models (alongside tools to ensure they conform to regulatory compliance) as they strive to become more efficient, more profitable and develop new revenue streams.
The stories in the news this week celebrate and share genuine innovation in the legal sector, and further underline that the individual lawyer, the nature of legal advice and the way in which that advice is delivered needs to undergo deep change to keep pace in the global economy.
2. Aviva fined £8.2m for client money failings
Insurance group Aviva have been penalised by the FCA this week as it emerged they have failed to comply with Client Assets Protection Regime (CASS) regulations.
The £8.2m fine was handed out for client money failings on an outsourced platform. The regulator declared that certain activities outsourced by Aviva didn’t have in place the correct controls and oversight arrangements to sufficiently monitor the client assets on the adviser platform.
The FCA also used this as an example to relay that outsourced CASS functions are still under the responsibility of the regulated firm and it is up to them to ensure that client assets are protected.
Last year, Aviva Investors were fined £17.6m over failures to manage conflicts of interests fairly, whilst a former investment analyst at the firm was also banned and fined £139,000 for exploiting weaknesses in Aviva’s trading systems and controls to in order to delay the booking and allocation of trades.
CASS has become an essential piece of regulation since new rules were enforced in 2014. It was demonstrated how vulnerable client assets were after the fallout of Lehman Brothers and MF Global and the extent to which ring-fencing rules needed to be reformed. Eight years on from the collapse, regulators and asset managers continue to prioritise the systems and procedures for implementing client money rules.
Back in June this year, Merrill Lynch, the brokerage unit of Bank of America Merrill Lynch, was fined for similar failings, with the Securities and Exchange Commission (SEC) charging a $415m settlement for the failure to safeguard customer assets. The investment bank seemingly used $5bn of customer cash to finance its own trading activities whilst also reserving up to $58bn per day of customer securities in a clearing account as opposed to a reserve account, which exists to protect the funds if the bank were to fail. It marked the second largest Wall Street penalty ever and led to a wider investigation into the industry to probe for other breaches of client asset rules.
The Aviva case indicates the importance of complying with preventative regulation, specifically that concerning the protection of customer money and assets. Although no client assets were actually lost in this incident, the previous high-profile insolvencies that have occurred in this industry in the past has caused CASS compliance to remain top priority for global regulators.
Appointments
New chairman appointed at the CLLS
Edward Sparrow, litigation partner at Ashurst, will take on the role of chairman at the City of London Law Society from Alasdair Douglas, former senior partner of Travers Smith
Moves
Sidley grows London restructuring team
Restructuring partner Jifree Cader joins Kirkland & Ellis in London from Sidley Austin
Southampton FC gains new legal director
Tim Greenwell, former general counsel of Toyota UK, is set to join Southampton FC as legal director
Nokia litigation head returns to private practice
Head of litigation at Nokia Richard Vary moves to Bird & Bird in London as a partner
Shearman loses Paris partner duo
Paris private equity partners Arnaud Fromion and Frederic Guillox, along with counsel Adrien Paturaud, leave Shearman & Sterling to join Goodwin Procter in their Paris office
Shearman experiences further loss with London tax head
London head of tax Sarah Priestley quits Shearman & Sterling
Ashurst regulatory partner decides to remain at the firm
James Perry, who resigned in April to join Gibson Dunn & Crutcher, has chosen to remain at Ashurst
Olswang restructuring head departs during merger talks
Alicia Videon leaves Olswang to join McDermott Will & Emery in its London transactions practice
Office Openings & Closings
Litigation finance provider set up its own law firm
Burford Capital has launched ABS Burford Law in London and hired Akin Gump litigation partner Tom Evans
Partner Promotions
Goodwin Procter promotes 15 to partner, one in the City
Covington makes up 13, including first City promotion since 2014
Kirkland promotions round sees 81 join partnership, with six in London
Hello and welcome to the Fides Weekly Update. Take a look at this week’s key trends, moves and developments in legal and compliance.
Scroll down to take a look at our featured blog written by Directors Phil Burdon and Tom Spence, which looks into the reasons why a collaborative approach is so necessary in a law firms today
Why not follow us on Linkedin for regular market updates?
This week:
1. CC provides competition for A&O’s OTC derivatives regulation tool
Clifford Chance (CC) have announced a new tool developed with Thomson Reuters that supports their bank clients with new regulatory requirements for over-the-counter (OTC) derivatives transactions.
The solution will allow financial institutions to meet regulatory obligations for complex, multi-jurisdictional contract work concerning uncleared OTC derivatives. It has been created specifically in line with new margin requirements, which are expected to put further cost pressures on financial institutions.
The tech compares to MarginMatrix, a tool developed by Allen & Overy (A&O) and Deloitte, announced in June, which helps bank deals with similar regulatory challenges brought about by the European Markets Infrastructure Regulation (EMIR).
The collaboration between A&O and Deloitte was fairly ground-breaking and combined impressive legal expertise and managed services. The most recent tie-up with CC and Thomson Reuters has followed suit, pairing up a similarly impressive regulatory offering with a leading provider of information and software solutions.
Thomson Reuters has applied its contract automation software Contract Express to the tool which enables it to generate regulatory compliant documentation that as well provide greater economies of scale by producing more contracts at a much quicker rate.
CC describes how the new flexible service has come about as a result of client responses. Paget Dare Bryan is a banking partner at the magic circle firm and said: “Clients didn’t all want a one-sized package; they wanted to be able to disentangle what they wanted from it, from templates to teams of people – they might be able to run some aspects of it themselves. They are going to use us and Thomson Reuters in a way that fits in with their pricing model.”
This flexibility has been welcomed by clients and signals an understanding from law firms that the delivery of legal services must best suit their clients’ needs, which can often be met by the innovative solutions from businesses such as Thomson Reuters and Deloitte.
2. FCA revisits the Senior Manager’s Regime
Six months after the introduction of the Senior Managers and Certification Regime (SMCR), responsibility for the conduct and culture of financial services firms continues to be obscured, argued new chief executive of the Financial Conduct Authority Andrew Bailey.
Despite firms making a “substantial effort to get this right,” in his first opinion piece since taking up the role three months ago, Bailey highlights evidence of overlapping and unclear allocation of responsibilities under the SMCR and even cases of firms sharing responsibility amongst more junior members of staff to obscure who is genuinely accountable.
“This goes against the intention of the senior managers and certification regime and should not continue,” he said.
Introduced as part of the UK’s financial regulatory framework in March, the SMCR ensures greater accountability for individual actions by more clearly defining the roles and responsibilities of those in senior functions. While it currently applies just to lenders and insurers, the rules will be extended across the financial sector — including asset managers and hedge funds — by 2018.
The banking industry is particularly cautious about the new regime as the FCA have predicted it will bring about a greater amount of enforcement action against individuals.
Bailey made public his comments on the application of the regime, ahead of the FCA’s announcement that it has published feedback on the implementation process over the last six months and proposed measures to further reinforce the importance of the regime, particularly at the most senior levels.
The proposed amendments also dictate that those with poor conduct records may find harder to find new work if they’re looking to move as employers may not be as able to provide references. Moreover, the changes will also affect their remuneration as bonuses transferred to new employers for a regulated senior manager can be forfeited or taken back by the former employer.
Since its inception, there has also been a lack of clarity over how the SMCR affects in-house legal functions. It has been highlighted by the Law Society of England and Wales that lawyers, if included in the SMCR, will struggle to provide honest legal advice to their employees, which would indicate a conflict of interest. ‘In some circumstances general counsel may, by virtue of being included in the Senior Managers Regime, feel obliged to disclose legally privileged information,’ the Law Society said. The FCA have therefore launched a discussion paper to explore this challenge further and explain better how legal functions should be treated under the regime.
Appointments
Senior management re-elected for another three-year term at Charles Russell Speechlys
Both managing partner James Carter and senior partner Christopher Page ran unopposed in Charles Russell Speechlys’ management team elections
Clydes senior partner steps down
Senior partner at Clyde & Co James Burns will be stepping down and taking on a new role as head of the Americas. The firm are to appoint a new senior partner next month
Moves
HSF loses Middle East rainmaker to Jones Day
Nadim Khan exits his post as Middle East finance head for Herbert Smith Freehills to join Jones Day and serve as their head of Middle East banking and finance practice
Osborne Clarke makes two City corporate hires
Former head of corporate Edward Persse and fellow corporate partner Paul Smith both depart Irwin Mitchell to join the London corporate team at Osborne Clarke
Ashurst retains banking partner
Banking partner Nigel Ward remains a partner at Ashurst after it was announced he would be leaving for Paul Hastings
Olswang loses life sciences co-head to magic circle firm
Stephen Reese, IP partner and co-head of life sciences, departs from Olswang to join Clifford Chance in London
Quinn bolsters City FS offering
Quinn Emanuel Urquhart & Sullivan have taken on Macfarlanes’ financial services head David Berman, who will sit in their white collar and investigations practice
Covington hires ex BG GC
BG Group former general counsel Graham Vinter will be returning to private practice, joining Covington & Burling’s London project finance offering
Office Openings & Closings
EY Law loses international law capability in Singapore
EY Law’s network firm in Singapore DA Partners has shut down, leaving the firm without an international offering, with only a domestic law offering in the country with local practice PK Wong
Cadwalader shuts down in China
Cadwalader Wickersham & Taft announces office closures in Beijing and Hong Kong
Mergers & Alliances
CMS, Nabarro and Olswang discussing a three-way tie up
‘‘Cooperative arrangement in which two or more parties work jointly towards a common goal.” – Definition of collaboration, Business Dictionary website
The need for successful collaboration in the delivery of legal services is crucial. Whether this is relating to collaboration between peers, within differing layers of a firm’s hierarchy or between lawyers and non-lawyers, those who are able to work together successfully will be ahead of the pack.
Despite the above definition appearing to have collaboration at its core, law firms in particular are known to put less of an emphasis on the collective. Is this driven by the concept of the billable hour? Or perhaps the move away from the traditional lockstep model which has put more emphasis on individual performance rather than collective strength? Whatever the driver, it seems that genuine collaboration between individual lawyers, non-fee earning members and the firm’s global network can lack consistency in the eyes of lawyers and clients alike.
The competitive nature of the current legal landscape has put pressure on law firms to deliver cost effective solutions, often with a cross-border element. The successful delivery of these services is now under greater scrutiny and collaboration will play a central part of this process. Project management, business development and in-house technology teams have become essential additions to law firm infrastructure, shaping how the delivery of legal services is received by clients. For that reason, developing the relationships amongst these teams and lawyers will greatly affect the quality of legal services a firms can provide.
Individual mind-sets limit the extent to which lawyers are able to collaborate and provide integrated, streamlined services to their clients. Lawyers are naturally competitive and aren’t accustomed to working in collaboration or sharing information with peers. Typical remuneration models further block these efforts, as sometimes does the partnership model, and when assessing cross-border working methods, different cultural attitudes and behaviour will also affect how open a law firm is to the idea of collaboration. There is no doubt that the culture of law firms and their partnerships has changed in recent decades and with this, their business model has changed. As the need to continue evolving and progressing is constant, law firms must ensure underlying cultural support for this change.
As the market seems to be demanding better collaboration of its lawyers, the challenge remains as to how individuals within firm’s best do so. Whilst technology is pushing the industry into a new era and the size and scale of international firms continues to expand, there remains a basic necessity for interpersonal collaboration to bring all these things together. This fundamental need for personal collaboration might be the greatest challenge expanding firms face, but it could also represent the greatest opportunity for these firms to differentiate themselves in the market.
Hello and welcome to the Fides Weekly Update. Take a look at this week’s key trends, moves and developments in legal and compliance.
Follow us on Linkedin for daily market updates
This week:
1. FCA’s robo-advice unit takes shape
At the BBA FinTech Banking Conference this week, the FCA announced that nine firms will be receiving advice from their specialist robo-advice unit.
The regulator launched the robo-advice unit in June this year, allocating a £500,000 budget to the department for its first year. They aim to initially provide individual feedback to those applying for FCA authorisation, and consequently produce further general guidance and regulatory toolkits for those developing automated advice models. Eight out of the nine firms taking part are said to be ‘established firms’ in financial services, with the FT adviser reporting that online investments service True Potential are amongst them. True Potential offer an end-to-end advisory service, incorporating an online platform, fund advisers and back-office systems into one simple tool.
The FCA representative speaking at BBA conference was Christopher Woolard, Director of Strategy and Competition at the FCA. His speech not only addressed the news concerning their robo-advice unit, but also covered further advancements made in other divisions of Project Innovate.
On the current status of the Regulatory Sandbox, Woolard explained their efforts in solving issues concerning the implementation of distributed ledger technology. He highlighted the opportunities it offers for KYC and AML requirements and also revealed that they have received Sandbox applications from a number of blockchain firms, which should hopefully allow them to better monitor the technology and explore future risks.
Woolard also touched on regtech and its potential to ‘free up large sums of operational and capital expenditure currently spent on compliance’. They are hosting a range of hackathons to explore some of potential tech solutions that can be used in regulatory teams and which products would be best to bring into the market. The FCA seem to be embracing regtech and are encouraging innovation in this space as it could offer more efficient and effective ways of meeting regulatory standards, making it simpler for firms to fulfil their regulatory requirements.
In the two years that Project Innovate has been running, they have received 19 applications for the robo-advice unit, 69 applications for the Regulatory Sandbox and assisted 300 firms in navigating the regulatory system. The FCA’s appetite to embrace new technology and push the envelope with ventures, such as Project Innovate and the robo-advice unit have allowed the FCA to remain the leading regulator for start-up fintech firms, with London retaining their place as a first-rate location for this sector. This is an especially vital area of business for the UK following the EU referendum result and provides much needed incentive for financial services firms to maintain their UK operations.
2. Shearmans consider demoting partners from equity in profits push
In response to challenging market conditions, Shearman & Sterling are considering demoting some of its equity partners in a bid to boost profitability and re-focus the business around priority practice areas.
As reported by Legal Week, plans were discussed in a meeting between the firm’s global and regional managers in New York on Wednesday, with potential changes being implemented from the firm’s annual compensation period in January.
With partners in the less profitable practice areas and regions understood to be the most affected, there could also be a reduction in practice group heads.
“As with all firms, we regularly review how and where we invest equity and manage head count,” the firm said in a statement Tuesday. At time of release, the 839-lawyer firm has 162 equity partners and operates across 20 offices globally.
The removal of underperforming partners from the firm’s equity has been a major problem for senior management in the past, with the Shearman’s partnership agreement requiring a supermajority of 75% of equity partner support to remove a member from the equity partnership.
Despite this, it is possible to de-equitise partners with individual consent, which could be gained under management provision to reduce the compensation of equity partners by up to 25%.
It is understood that there has been growing frustration at the firm’s stalled growth, with gross revenues growing just under 2% last year and average PEP falling 4% to $1.8m. This followed two strong years financially for the firm, which posted a 19% growth in PEP in 2013.
Despite this, Shearman’s adopted Cravath’s new salary scale in June and has continued to grow its younger tier of partners, promoting 25 in the last two years, many to fixed-share status.
With law firm’s obsession with PEP and profitability tables not seemingly abating, there is huge pressure on firms to perform in this challenging global economy.
Whilst the redistribution of equity is a sensitive point of discussion within law firms and the market, Shearman are not alone in facing difficulty to balance the books across their international and full service business.
As we have seen earlier this year at Freshfields, impetus has been placed on large firms to reassess and evolve their partnership structures to maintain coverage of markets and sectors aligned to their strategy, despite contrasting levels of profitability.
Movers & Shakers of the week
Appointments
K&L Gates appoints two lawyer to become chair and global managing partner
Michael Caccese and James Segerdahl are set to become K&L Gates new non-executive chair and global managing partner respectively.
Moves
Eversheds grows construction and engineering team
Disputes partner Jonathan Douglas joins Eversheds from Nabarro to sit in their construction and engineering team in London
Baker Botts build out Moscow office
Ivan Marisin, Moscow office head, and arbitration partner Vasily Kuznetsov leave Quinn Emanuel Urquhart & Sullivan to join Baker Botts with Marisin acting as head of their Russian disputes offering and Kuznetsov serving as co-chair of their international disputes practice
Simmons gain corporate partner in Brussels
Ashurst’s Brussels managing partner Carl Meyntjens will be exiting the firm to join Simmons & Simmons in their Brussels office along with corporate counsel Kelly Cherrette
A&O expand London IP team
Simmons & Simmons’ IP partners Mark Heaney and David Stone will be joining Allen & Overy’s IP litigation team in London
Forsters take on former KWM City tax head
Heather Corben, former head of Tax at King & Wood Mallesons will be joining Forsters in London
Mergers & Alliances
DLA Piper agree merger with Canadian IP firm Dimock Stratton
Hello and welcome to the Fides Weekly Update. Take a look at this week’s key trends, moves and developments in legal and compliance.
You can also follow us on Linkedin for daily market updates
This week:
1. Slaughters enters new age with AI technology
Slaughter and May are the latest in a string of firms to strike a deal with an AI provider, bringing their practice into the new era of legal services
Luminance Technologies are a UK start-up that have developed artificial intelligence (AI) to assist lawyers with the due diligence in mergers and acquisitions. As Slaughters have a long-standing relationship with Mike Lynch, who funded $3 million in the technology start-up, the magic circle firm have decided to adopt Luminance’s AI technology after testing and piloting it on previous transactions.
Mike Lynch is one of the most prominent figures in British technology, having founded and acted as the former chief exec for UK software group Autonomy. His involvement and funding into AI in the legal industry is a significant endorsement for the technology, and proves how much it has developed and strengthened over the last few years.
Slaughters senior partner Steve Cooke says that Luminance will be of great advantage to the junior lawyers at the firm. “It gives them their lives back. A lot of the due diligence work is not the most exciting work for lawyers” says Cooke.
AI has been most well accepted by law firms for carrying out due diligence tasks. The technology uses machine learning, where a computer is able to teach itself to grow and change after new data is inputted, with results becoming more refined after each usage. Tasks such as due diligence are time-consuming, tedious processes which, as a result, can expose themselves to human error and leave junior lawyers to carry out basic tasks rather than gaining experience in the more challenging parts of a deal. AI can now extract and review this diligence data and compile it into a report in a fraction of the amount of time it would take a human.
There are a number of firms who see the benefits of integrating AI into legal processes, with Clifford Chance and DLA Piper both signing up with Kira Systems, and Linklaters and Berwin Leighton Paisner choosing to sign on with RAVN technologies as their AI provider.
With most of the magic circle embracing artificial intelligence, including Slaughters who are arguably the most conservative firm in UK legal industry, it marks a significant step towards revolutionising the way the law firms work and enhancing the efficiency and quality of legal services across the UK market.
2. AAM told to increase regulatory capital buffers
Aberdeen Asset Management must increase the minimum amount of cash it holds as a regulatory capital buffer following a periodic review by the FCA, the firm announced on Monday.
Europe’s third-largest listed funds house was told to boost the level of capital it holds from £335m to £475m to cover any ‘unsighted and unquantifiable risks’.
Initially holding an additional self-imposed capital reserve of £100m and £118m rainy day fund, FCA requirements for Aberdeen to increase its capital buffer have led the asset manager to scrap this internal policy, and will now only hold an additional £78m in capital above the new regulatory requirement.
This is the latest sign of how regulators are taking a closer look at the UK asset management sector which has expanded exponentially since the financial crisis.
A perceived risk factor for some time, it is unlikely that Aberdeen were the only asset manager required by the FCA to hold additional regulatory capital.
Indeed, a recent report from Morgan Stanley found great disparity in the level of capital held by large asset managers, with the quartile of the most highly capitalised firms holding three times more capital than the quartile of companies that are least capitalised.
Increased regulatory pressure on the sector has been building for some time. Last year the FCA banned asset management companies from insuring themselves against unexpected losses, such as through fines or litigation. This follows on from the launch of their market study into competition and fees in the industry in November 2015.
The decision by the FCA that the sector can no longer insure themselves against some risks, and instead must hold additional capital to cover such risks themselves, has far-reaching implications for the asset management industry.
With regulator attention on the fund industry’s capital requirement historically being low – especially when compared with banking and insurance – the FCA’s demands for greater capital buffers will, at best, cause asset managers to re-visit their dividend policies, and at worse cause significant worry for firms who have struggled with outflows in recent years and not had the ability to build up significant surplus capital.
At a fundamental level, with more capital set aside for regulatory buffers, this is likely to have an effect on the way fund houses operate, and ultimately on their investors and shareholders.
It will now be critical for shareholders and investors alike to carefully monitor capital, largely unconsidered in the sector until now, with industry experts predicting that levels of capital will become a key differentiator between firms, with asset managers with a higher level of additional capital being expected to fare better in the future in terms of fund sales and share price performance .
Movers & Shakers of the Week
Appointments
Clearys appoints next managing partner
Private funds partner Michael Gerstenzang has been named Mark Leddy’s successor as managing partner for Cleary Gottlieb Steen & Hamilton
Moves
Ashurst faces five more partner exits
Singapore managing partner Shaun Lascelles leaves Ashurst, rumoured to be joining Vinson & Elkins
Ashurst’s former head of banking and capital markets Nigel Ward will be joining Paul Hastings
Hong Kong managing partner Lina Lee departs for Allen & Overy, along with fellow capital markets partner Jonathan Hsui.
Ashurst’s Abu Dhabi managing partner Alastair Holland has also exited the firm for the Dubai office of US firm Curtis Mallet-Prevost Colt & Mosle.
W&C gains co-head of tax
Berwin Leighton Paisner’s head of tax Michael Wistow departs for White & Case, where he will serve as their EMEA co-head of tax, based in the City
Mischon strengthens City funds capability
Partner Daniel Greenaway, co-head of funds at Pinsent Masons, has joined Mischon de Reya’s corporate practice in London
Office Openings & Closings
Herbert Smith Freehills launch a new alternative legal services hub in Melbourne
PwC opens first base in Singapore
Mergers & Alliances
Norton Rose Fulbright makes third Canadian acquisition in Vancouver firm Bull Housser
We have witnessed an increase in commercial mindedness across Legal & Compliance in recent years which we believe is a by-product of wider market conditions within the financial services sector and generally heightened risk awareness in the industry. The impetus has been thrust upon control functions to improve awareness of risk across all product areas, while at the same time, Legal & Compliance practitioners have had to step up their understanding of the businesses they support. In the following paragraphs, we will explore how Compliance functions have improved their commercial mindedness while Legal functions have sought to enhance their awareness of risk.
The transition and trends from a pre-crash compliance officer to today’s more business-aligned demographic has meant that commercial awareness has become an essential prerequisite for anyone looking to get ahead in these so called ‘middle-office’ functions. Gone are the days of ‘box ticking’ and simply going through the motions of adhering to the rules. Now there is a flow of former business professionals making the transition from transactional teams into regulation and compliance, where we are seeing traders moving into surveillance and sales professionals into risk advisory. However the transition manifests itself, it is normally driven by an awakening to the fact that control functions need to be infused with an in-depth and thorough understanding of the commercial rationale and drivers behind the transactions being undertaken by financial institutions.
“The role of in-house lawyer has morphed significantly from facilitator and ‘deal doer’ to advisor and protector”
Conversely, in Legal we have witnessed a seismic shift of emphasis from the business led transactional side to the more risk aware litigation and regulatory functions within the in-house sector. The impact of this shift is reflected by law firm demand as they have strived to adjust to their clients’ needs. The role of in-house lawyer has morphed significantly from facilitator and ‘deal doer’ to advisor and protector (even sometime ‘whistleblower’) with an emphasis on reputation, risk profile and standing with the regulator. Whilst individual front line teams within banks and funds may still comprise of lawyers, they ultimately defer to authority and sign off of with an independent legal function which is most likely be headed up by a GC whose principal focus will be on regulation and risk.
In parallel with the gravitation of legal counsel away from commercial mindedness towards risk awareness, we have seen law firms in turn apply commercial mindedness in their own way, namely seeking to capitalise on the opportunities which have sprung up from banks needing to tighten compliance and risk measures and those systems underpinning their control functions. This accounts for the rise in law firms setting up consultancies and risk advisory businesses to meet client demand, and the call for additional support in tackling the mammoth task of regulation and risk compliance.
Noting where we are in the cycle and the extent to which financial institutions have stepped up control functions and systems to meet their obligations and industry standards, while regulatory change is likely to continue to be a hot topic, we sense the pace of change is beginning to slow down as markets start to turn a corner. While we are unlikely to return to the heady days witnessed during the first decade of this century, there will need to be a further adjustment of the balance of power between risk awareness and commercial mindedness. With lessons learnt, greed banished and pre-emptive measures in place, we ask ourselves whether it is conceivable that an equilibrium be struck between “risk” and “reward”.
If you would like to more information on this topic, please contact authors Director Shirin Stanley or Consultant Max Alfano.
Hello and welcome to the Fides Weekly Update. Take a look at this week’s key trends, moves and developments in legal and compliance.
You can also follow us on Linkedin for daily market updates
This week:
1. How dangerous is passive investing for the asset management industry?
A top US research and brokerage firm has released a note claiming that the rise of passive asset management in the industry could cause serious detriment under a capitalist economy, more so than if we were to operate in a Marxist economy.
The note titled “The Silent Road to Serfdom: Why Passive Investing is Worse Than Marxism”, was published by Sanford C. Bernstein & Co, and warns that passive investing is a threat to asset management as a capital economy should naturally be run as an active market.
They claim: “a supposedly capitalist economy where the only investment is passive is worse than either a centrally planned economy or an economy with active market led capital management.”
In recent times, the asset management industry has seen a rise in legal and regulatory policy initiatives as well as considerably less prosperous market conditions, leading to a dip in the performance of active, high-risk funds. With this lack of performance and sky-high fees, the market has encountered an uplift in the demand of exchange-traded funds and other passively managed vehicles as investors look for more prudent strategies.
Bernstein argues that this method of investing goes against the grain in a capitalist society, where capital should be managed in the most productive manner, seeking the highest returns, which should in turn create new jobs and raise the standard of living.
Bernstein’s head of global quantitative and European equity strategy Inigo Fraser-Jenkins argues that ‘The commonality between both active market management and the Marxist approach is that in both cases there are a set of agents trying – at least in principle – to optimise the flows of capital in the real economy. It is just such a feature that is lacking in passive investment management.’
Although this seems to be a fair argument, it is common for all economies to weather a variety of market trends, in particular, during the recession and expansion phases of the economic cycle. There is a possibility that the popularity of passive investing is purely a temporary stage in asset management, and the inevitable return of investor confidence in financial markets will undoubtedly bring active funds back to the fore. But whilst the FCA is in process of their thematic review of the Asset Management industry and with fees at the top of their agenda, it is perhaps a matter of time before investors decide that the active fund managers still have a part to play in the development and growth of wealth.
2. Nearly half of senior associates regret legal career – what’s the solution?
With only four out of 10 senior associates surveyed that they would choose to become a lawyer again if they had the chance, it seems the legal profession doesn’t provide as much job satisfaction as one might think.
New research carried out in The Lawyer Salary Survey revealed that only 37 per cent of senior associates would take the same path given a second chance. This was the lowest figure compared to all those both higher and lower in experience. Trainees seemed the most happy about their decision, with 59 per cent claiming they would make the same choice.
These figures also highlight that lawyers become much happier with their choice when joining the partnership, as the numbers from 7+PQE to Partner jump by nearly 10 per cent.
The survey highlights the alarming number of lawyers who aren’t happy with either the profession or their position in their respective firms and businesses. With such a small proportion of senior associates making it as a partner, law firms need to improve, or even create, a solid path of career progression outside the traditional partnership track.
Moreover, the statistics also emphasise how low the level of job satisfaction for lawyers is across the board. The exceedingly long hours, combined with pressing deadlines, and the constant struggle with adversity all contribute to the amount of dissatisfaction. Many of these factors, however, can be overcome by the numerous initiatives that law firms are gradually beginning to implement.
Bringing in and adhering to initiatives, such as diversity and inclusion and agile working, is crucial when trying to provide lawyers with a necessary work/life balance and foster the kind of firm culture in which lawyers find their jobs rewarding and engaging, as opposed to challenging and fundamentally unrewarding. It is this final point that might hold these statistics back. Despite firms’ best efforts, how do law firms motivate senior associates who know their goals of partnership are continually diminishing and are therefore questioning the decade or more they have spent working towards this goal? Some do make it to where they want to be but unfortunately the majority don’t and keeping the majority motivated is clearly a challenge law firms and the industry in general is failing currently.
Movers & Shakers of the Week
Appointments
Greenberg overhauls management structure
London chair Paul Maher, global practice chair Patricia Menéndez-Cambó and regional operations chair Richard Edlin have all been appointed global vice-chairs of Greenberg Traurig
Moves
Eversheds’ international arbitration head to join Freshfields
Will Thomas, head of international arbitration at Eversheds, joins Freshfields Bruckhaus Deringer in the City
Linkaters corporate head takes a GC role
Head of Corporate London for Linklaters Stuart Bedford moves to private equity house LeapFrog Investments as their general counsel.
A&O loses two German partners to US firms
Latham & Watkins hired Allen & Overy’s international capital markets group head Oliver Seiler in Frankfurt, whilst corporate partner Michael Ulmer also leaves the magic circle firm’s Frankfurt office for Cleary Gottlieb Steen & Hamilton
Olswang sees two exits from City office
Corporate partner Duncan McDonald departs Olswang for Taylor Wessing and Howard Cartlidge, former London competition head, joins DWF
Office Openings & Closings
Mergers & Alliances
Dentons set up association in Iran with local firm Arman Pirouzan Parvine Legal Institute (IPP)
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