Hello and welcome to the Fides Weekly Update. Take a look at this week’s key trends, moves and developments in legal and compliance.

Tweet us @Fides_Search to let us know your thoughts.

This week:

1. Chadbourne Partner launches $100 million class action 

Efforts to improve gender equality within the legal sector were hit with a reality check this week, as Washington D.C. Litigation partner Kerrie Campbell filed a $100 million class action complaint against her employer Chadbourne & Parke on Wednesday.

The complaint, filed on behalf of current and former female Chadbourne partners since 2013, claims that the firm routinely underpays women and offers them fewer leadership opportunities in comparison to men.

A spokesman for Chadbourne has denied the gender discrimination claims.

The root of this, Campbell claims, is the five-person all-male management committee who consistently made compensation and promotion decisions that discriminated against her and other women by arbitrarily awarding male partners more points.

Last year, 11 of Chadbourne’s 18 female partners were allotted a significantly lower number of points than male colleagues, a long term trend as women were awarded up to 1,000 points in the firm’s compensation system from 2013 to 2015, whilst male partners got up to 2,250.

The firm’s culture has been further called into question by the fact that, of the 20 non-partner lawyers who left Chadbourne’s Litigation team last year, 17 of them were women.

Despite having combined experience of 27 years at two major law firms, being a partner and consumer product safety head at each, Campbell contends that the management committee assigned her 500 partnership points for the $2 million she was projected in her first year.

This was well below the 1,000-1,400 points a number of less productive male colleagues received, with the complaint stating that one male partner received 850 points despite only billing $253,000 in 2014.

Campbell also claims to have brought in more than 20 clients and $5 million in revenue in her less than three years at the firm, placing her amongst Chadbourne’s highest earners. Despite this, she contends that she received a smaller paycheck with no annual bonus that left her in the bottom third of partner pay, and that Chadbourne has underpaid her by more than $2.7 million dollars during her time there.

Upon taking her case of gender and pay discrimination to the management committee in early 2015, citing gender and pay-based discrimination, the compliant claims that management rallied against her – refusing to provide adequate staffing for her cases, manipulating her collections to undermine her origination fees and refusing to acknowledge Campbell by name in the firm’s marketing and promotional materials.

Eventually, in January 2016, Campbell was asked to leave and was told that her practice representing clients with defamation, First Amendment and consumer product safety issues was not a good fit with the firm.

The complaint further alleged that upon immediately asking her to leave, the firm slashed her pay without benefits to $180,000 – well below that of a first year associate at the firm – and withheld more than $440,000 in her capital account.

Unfortunately, Campbell’s case is not an isolated one, with Insurance partner Traci Ribeiro launching a class action suit against San Francisco-based firm Sedgwick last month.

Cases such as this do not bode well for future diversity in the profession, especially within the highest levels of law firms. In the US, women only hold 18% of big law partnerships, only rising from 16% a decade ago, with female partners routinely earning 20% less than that of their male colleagues (Female partnership numbers in the UK don’t fare much better, averaging 19% across the Top 20).

Perhaps more challenging is the fact that, despite offering an insight into closely-guarded law firm compensation, this case shows the way in which law firms ‘push out’ partners that they no longer want. In a highly competitive legal market place, law firms need to seriously rethink their culture in order to attract and retain the best talent.

For a copy of our Research article A Path to Parity: Reassessing Gender Balance within UK Law Firms please contact research@fidessearch.com

2. Digital currencies make their way into financial markets 

The world of digital currencies and blockchain may be about to enter the mainstream financial market as a new digital currency is being developed by four of the largest banks.

The consortium, pioneered by UBS, consists of global banks Deutsche Bank, Santander, BNY Mellon, as well as broker ICAP, who have developed the “Utility Settlement Coin” (USC), a new digital currency that is able to use blockchain technology to clear and settle securities trades in financial markets.

There have been a number of digital and virtual currencies entering the market since their inception, the most famous being Bitcoin introduced in 2009, but the issues surrounding price volatility and lack of confidence in the decentralised system (that is where no individual party oversees the transaction) has led to a number of obstacles for growth.

(For a more in-depth explanation of blockchain technology, please see this article by the Wall Street Journal)

However, USC concentrates more on the use of blockchain technology than it does acting as a widespread currency. It will be linked to global currencies and the central bank, which will provide stability for the digital currency unlike some others which are publicly issued, such as Bitcoin. The currency will be used to speed up transaction and clearing processes as cash from a trade will be converted into utility settlement coins, to then be placed on a distributed ledger (i.e. the blockchain) and immediately exchanged for the financial securities being traded. The ledger bypasses the need for third-party verification, and enables trades to be carried out in a matter of seconds as opposed to two or three days.

They first announced the development of USC in September last year and are now planning to test it in a real market environment. The banks are hoping to launch the product in early 2018.

Regulation of fintech products such as digital currency and blockchain has been the largest question when implementing these new technologies in financial markets. Integrating digital currencies to current securities transactions may leave a number of grey areas that could cause failures if they were to be introduced too soon. Regulators need to be certain that the complex, sophisticated workings of blockchain technology will comply with rules already laid out, and if not, how regulation needs to be adapted in order to incorporate the potential risks involved.

The FCA is the leading regulator in Europe to focus on new technology and enabling start-up fintech businesses, as demonstrated by the revolutionary Project Innovate. It’s widely praised “Regulatory Sandbox”, which allows new technology and businesses to be tested in a live market under predetermined parameters, has allowed London to remain the fintech hub across Europe. It is key for the development of the banking system, which is still antiquated in its technology and speed of process that new digital currencies such as USC are allowed to develop whilst also being fit for purpose.

Financial crime is another crucial element to consider with digital currencies. Without full regulatory coverage, these currencies can become attractive for criminal activity, such as money laundering and terrorist financing. On the other hand, it has been said that the blockchain technology used to operate these currencies, if executed correctly, can in fact play a major role in the fight against financial crime. It would introduce complete transparency across all parts of a financial transaction, and in turn reduce fraud, by providing a common, visible platform for transactions.

If the Utility Settlement Coin does become an industry standard, used in transactions by all major banks and financial institutions, it could pave the way for further use of blockchain technology within financial services as well as other industry sectors generally.

Movers & Shakers of the week

Appointments

Tamara Box becomes EME Managing Partner in management shake up at Reed Smith
Reed Smith has carved up Rodger Parker’s role as EMEA Managing Partner, with Tamara Box taking the reigns in Europe and the Middle East

M&S appoint new GC 
Marks & Spencer’s general counsel Robert Ivens will be retiring from his role after 31 years at the company, with Verity Chase being promoted into the role

Moves

W&C hires 10 partners from HSF to launch Australian team 
Eight partners from Herbert Smith Freehills’ Sydney and Melbourne offices will be moving to White & Case, along with two partners in Asia

CC hires another high profile partner in Germany 
Funds partner Sonya Pauls leaves King & Wood Mallesons to join Clifford Chance’s Munich office and head up their private equity funds practice

Hogan Lovells hires innovation director 
Former DLA Piper innovation director Stephen Allen will take on a new position at Hogan Lovells as head of legal services delivery, exiting DLA after one year in the role

Cadwalader builds out City offering 
Bird & Bird’s co-head of dispute resolution Stephen Baker has joined Cadwalader, Wickersham & Taft to sit in their litigation & international arbitration practice

Proskauer boosts PE capability
Partner Eleanor Shanks is set to join Proskauer Rose from Dentons in London where she will add to their global corporate and M&A practice

Proskauer loses two partners to fellow US firms in London 
Private equity partner James Howe will be leaving Proskauer Rose to join Gibson, Dunn & Crutcher whilst Olivier Rochman is moving to Morrison & Foerster in their global private investment funds practice

Ashurst looses four finance partners to US rivals
Paul Hastings picked up structured finance trio Michael Smith, Diala Minott and Cameron Saylor, whilst regulatory partner Nicola Higgs joins Latham & Watkins

Slater & Gordon’s former UK CEO leaves the firm amid restructuring
Former S&G UK CEO Cath Evans returned to Australia amid the firm’s restructuring and office closures in March

Office Openings & Closings

CMS set to launch in Hong Kong

Herbert Smith Freehills launches new alternative legal services provider in China

Hello and welcome to the Fides Weekly Update. Take a look at this week’s key trends, moves and developments in legal and compliance.

Tweet us @Fides_Search to let us know your thoughts.

1. Bonus shake-up for asset managers 

In a bid to improve work culture within the investment industry, two of the UK’s top asset managers are re-evaluating bonus pay in their organisations.

Neil Woodford, head of investment at Woodford Investment Management, has announced that the 35 employees of Woodford Investment Management will not receive any further compensation above their fixed salary. Similarly, Daniel Godfrey, the former chief executive of the Investment Association, has plans to set up a new fund where the executives will not be paid bonuses.

These changes are rare to see in asset management, as it’s an industry that has always been well-known for paying out big bonuses to senior management. High performing fund managers and bosses are used to receiving millions of pounds each year in bonus pay. For example, Prudential fund manager Richard Woolnough has been paid over £30 million in bonuses over the last two years.

The financial sector has long struggled with short-termism, and many studies have found that performance-based pay has converse effect on their productivity and doesn’t foster the right long-term philosophy and employee motivation as it should.

CEO of Woodford Investment Management Craig Newman said “drawing on our experience of various bonus-led remuneration models, we concluded that bonuses are largely ineffective in influencing the right behaviours.’ Instead, Newman will increase their fixed salaries in order to compensate for bonuses. He argues that bonuses cannot act as a motivator and the expectation is already built in. Instead, they prove rather counter-productive, by encouraging opportunistic and selfish behaviour.

Fund manager pay has become increasingly criticised recently and the largest asset management houses are being accused of offering excessive windfalls. Not only has this been branded ineffective in improving performance, but a shift in investor mentality from active fund management to passive fund management indicates that institutions will be less likely to pay out such larges bonuses, as this form of compensation isn’t as common with passive fund managers.

A report by PricewaterhouseCoopers also claims that the pay of asset managers will come under further scrutiny as the industry grows and faces increased regulatory pressures. It expects that compensation will drop as a percentage of revenues from 45% in 2010 to 35% in 2020. The report also states that remuneration represents 60% of asset management’s total costs, which may be unsustainable should the industry face any future challenges, such as the potential fallout from Brexit.

2. Another magic circle firm to break lockstep for US hire 

Last week, magic circle firm Allen & Overy (A&O) decided to break its lockstep to hire New York star performers. This takes place one year after the firm launched a discretionary bonus pool, and has created a trend amongst those entering the US marketplace.

It hasn’t been released for whom the lockstep was broken, but last month A&O carried out a five partner strong leveraged finance team hire in Manhattan, comprising of NY heavyweight Scott Zemser, who joined from White & Case; fellow W&C partners Alan Rockwell and Judah Frogel; Rajani Gupta from Proskauer Rose, and Todd Koretzky who was brought on board from Milbank, Tweed, Hadley & McCloy.

Last year, Freshfields Bruckhaus Deringer made the same decision to break their lockstep when hiring US high-yield partner Ward McKimm from Kirkland & Ellis. You could argue that Freshfields have been the most aggressive in their efforts to compete with leading US firms, but with A&O’s changes to their remuneration model, it’s clear that the firm are also serious about building a formidable US offering.

There have been a number of changes to partner remuneration models over the last few years, as UK firms have had to adjust locksteps, introduce ‘superpoints’ and provide discretionary bonus pools in order to compete with the profitability of US firms. However, when it comes to launching offices on the ground in the US, the home of the world’s elite and most profitable, firms have needed to make much more drastic changes to their business model if they expect to attract leading talent.

Linklaters and Clifford Chance have considered minor changes to their partner remuneration systems, with Linklaters proposing new gates to equity and Clifford Chance introducing ‘superpoints’, however, these additions are certainly not great enough to compete with the level of profitability they face in the US.

To read further on changes to partner remuneration models, take a look at our blog “Changing Lockstep: A review of partner remuneration in the UK”

Movers & Shakers of the week 

Appointments

A&O appoint new head of Asia practice
Stephen Miller is relocating from Allen & Overy’s London office to lead the firm’s Asia practice in Hong Kong

Moves

Dentons hires fifth Irwin Mitchell partner 
Former Irwin Mitchell partner Simon Tweedle joins Dentons’ banking and finance practice in London, becoming the fifth Irwin Mitchell partner to leave the firm for Dentons in the last two weeks

Proskauer bolsters City finance offering with Reed Smith hire
Proskauer Rose has hired leveraged finance partner Ben Davis from Reed Smith in London

Mergers & Alliances

Addleshaw Goddard and Hunton & Williams stall merger talks due to political uncertainty 

Clifford Chance sets up new association in Saudi Arabia 

High Frequency Traders (HFT) have largely lived in the underbelly of Financial Services, operating in a rare and often complicated world performing trades at speeds the human brain will never match. Regulators and governing bodies have not had the capability or the resource to fully understand and grasp these complex business models, which includes Hedge Funds and dark pools, leaving them to operate within looser parameters compared to the heavily regulated Investment Banking sector.

In November 2010 the ‘Flash Crash’ – where a trillion dollars was wiped off the U.S stock market in minutes only for it to rebound just as rapidly – made the global regulatory world take note as it sent shock waves throughout the market. Following this seismic event, it became clear that HFT’s operate in a digital age technologically but are largely governed by “Depression era-legislation”and there has been a significant reaction from regulatory bodies across the globe.

Since 2012 a wave of new rules have been implemented, including the revision of MiFID II adapted to ultimately de-risk the sector and the approach of HFT’s, although there still remains a stigma that these firms are not ultimately market makers. Significant banking institutions who essentially provide the market places for HFT’s to trade have never fully accepted their standing within the market, and coupled with their high risk gung-ho approach has led to a strained relationship. So much so, that banks are now turning their back on HFT firms, regardless of their profitability and platform, purely because of the risk attained with dealing with these institutions.

Banks and Hedge Funds have also made a strategic decision to focus on developing their own trading systems to be faster, with the use of algorithms, encroaching on the pure HFT houses such as Getco, Hudson River and Jump Trading. This has created a technological arms race with the biggest firms spending millions to find that nanosecond of time and be ahead of their competitors. This has separated the ‘haves’ from the ‘have-nots’, as smaller trading firms have been forced to think laterally and to have a more sophisticated strategy and business to remain profitable.  Investment banks have to be more commercial with their capital to enable it to stretch across its complex and diverse business areas, and are renowned for having antiquated technology not able to compete with HFT’s. This adaptive strategy has meant that the smaller trading houses have had to learn how to execute their strategy over a relatively longer period, which would perhaps not classify them as HFTs at all.

Regulators have struggled to keep up with this pace of development, to ensure that the new technology models are capable of delivering to the stricter regulation imposed on HFTs. Technology vendors such as Fidessa are not regulated themselves, and it is a question of whether they should be when they provide the technology to regulated entities.

It has now become increasingly difficult for firms to operate with Banks, Exchanges and Regulators clamping down on the marketplace in which HFTs operate. However, it does not seem to have slowed profits as they continue to develop ingenious ways to better their competitors. It is only recently that plans to build a tower taller than The Shard were submitted to transmit trades within one-millionth of a second to Europe’s markets and stock exchanges. Even with these increased regulatory challenges, the focus of High Frequency Traders to stay at the forefront of change is apparent, as remaining to be seen as approved market participants is integral for global footprint.

By Barrie Lee and Max Alfano, Consultants at Fides Search.

Hello and welcome to the Fides Weekly Update. Take a look at this week’s key trends, moves and developments in legal and compliance.

Tweet us @Fides_Search to let us know your thoughts.

1. Lawyers sweat over Government proposed fines for Tax advisers 

Proposals released by HM Revenue & Customs (HMRC) to strengthen tax avoidance sanctions and deterrents have been met with criticism by City partners.

Aimed to target the “enablers” of tax avoidance, such as bankers, accountants and lawyers, the proposals suggest up to a 100 per cent fine of the amount of tax avoided for those professionally involved in any tax avoidance scheme later defeated by HMRC in court. The document also suggests reversing the burden of proof that currently rests with HMRC to make it easier to gather evidence when prosecuting tax avoidance schemes.

With tax avoidance costing the UK public an estimated £2.7bn annually, the consultation aims to extend the risk from tax avoiders themselves (who already face significant financial costs) to those who advise on or facilitate the avoidance, who will also face being named to “alert and protect taxpayers.”

However, with a full framework of tax avoidance sanctions expected to be developed in the next stage of the consultation, current proposals have been criticised for their lack of clarity in several areas, including what constitutes “defeat” and the question of how HMRC would distinguish between tax avoidance and routine tax planning carried out by mainstream accountancy and law firms.

Whilst acknowledging that the proposals would act as a deterrent, Richard Woolich UK head of tax at DLA Piper highlighted the risk that insurance companies would up premiums for professional indemnity insurance for Private Client and Tax partners doing this type of work.

On the other hand, head of tax investigations at Pinsent Masons Fiona Fernie flagged concerns that the definitions in the proposals were “too broad” and that there was nothing in the document to stop the sanctions being applied retrospectively.

There is also the question as to what happens when a client decides to participate in a tax avoidance scheme despite of the risks involved, and whether the adviser would be liable to any fines in this instance.

This marks the latest attempt by HMRC to make life more uncomfortable for those who use or market tax avoidance schemes following Prime Minister’s Theresa May’s pledge to clamp down on corporate tax avoidance last month.

With a number of UK law firms being implicated with the fall out of the Panama Papers detailing the avoidance of Tax from Panamanian law firm Mossack Fonseca, HMRC’s new proposals show how the focus on the implication of tax avoidance is shifting from banks to law firms and accountants.

2. Are clearing houses a “new source of too-big-to-fail risk”? 

Global regulators have raised their concerns regarding derivatives clearing houses by publishing a discussion note this week, claiming there may be failings in their risk-management and recovery practices.

The Financial Stability Board (FSB) – joining forces with the Basel Committee on Banking Supervision, the Committee on Payments and Market Infrastructures, and the International Organization of Securities Commissions – coordinated a plan to reassess whether central counterparties (CCPs), or clearing houses, could withstand the stresses of another financial crash.

Authorities are trying to shift a lot of the risk management involved in over-the-counter derivatives transactions from banks to clearing houses, which will make them a much more dependent part of transactions process. The FSB are addressing a number of concerns over resolution planning, such as when authorities should step in to take control and how resources should be allocated during the resolution process. They are primarily gauging if widespread market failings were to occur, would they be resilient enough to withstand this and if they have sufficient safeguards in place.

One aspect the regulators are examining is the liquidity reserves held by clearing houses. The discussion notes highlight the importance of retaining sufficient resources to “absorb losses and to replenish the CCP’s…financial resources”. It is now critical to hold these capital buffers, with CCPs sitting more centric in the new financial services infrastructure – if a major clearing house were to default in the future, it would likely lead to systemic damage to the global financial system.

The FSB, chaired by Bank of England governor Mark Carney, are also developing a common system to stress-test CCPs, ensuring clearing houses aren’t effectively carrying out their resolution strategies.

The discussion note has asked for comments on these queries by market participants, requesting all comments to be delivered by 17th October. The FSB will subsequently propose further guidance on resolution planning in early 2017.

Movers & Shakers of the week 

Appointments

New GC for African Development Bank 
The African Development Bank has named N’Garnim-Ganga as its next general counsel, leaving her current position as representative of the bank in Mali

Moves

Irwin Mitchell loses five partners in London 
Irwin Mitchell’s London real estate head Rob Thompson and fellow real estate partners Lewis Myers, Rupert Dowdell and Jayne Schnider all join Dentons’ real estate practice, whilst London planning and infrastructure head Martha Grekos moves to Howard Kennedy.

HSF strengthens Düsseldorf office with magic circle hire 
Corporate partner Christoph Nawroth departs Freshfields Bruckhaus Deringer, where he served as co-head of the sub-sector global power and utilities group, and infrastructure funds group. He joins Herbert Smith Freehills’ Düsseldorf office.

Datalogic secure new GC
Data business Datalogic has hired Raffaele Zucca as its new global general counsel. He previously worked at technology company Denso as its Europe GC

Eversheds loses COO and finance director 
Kathyrn Fleming, COO and finance director at Eversheds, will be leaving the firm next year, with her next steps unknown

Dechert hires finance partner duo from DLA
Finance partners Philip Butler and David Miles leave DLA Piper to join Dechert in London

Office Openings & Closings

White & Cases closes its offices in Turkey and Kazakhstan

Adapt to survive.

Adapting and embracing change is essential to remain competitive and survive in the legal services provider marketplace.

With greater expectation from clients for ‘value added services’, alternative pricing structures and wider competition in the market from other law firms, the Big four and agile legal service providers, law firms must adapt to this change, with the failure to react fast enough not only impacting on profitability, but their very survival.

Increased expectation from clients and competition within the market has led to greater innovation in law, with firms challenging established working methods to achieve better service delivery whilst maintaining or reducing costs. The concept of law firms themselves have been redefined as beyond that of just legal service providers and the solvers of complex problems, to organisations who partner with their clients, better understand their market challenges, and provide flexible pricing and billing alongside greater efficiency and support.

In today’s world, law firms and their lawyers need to do and be more for their clients. In this blog we look at how law firms have adapted their infrastructure to embrace change within what is now a more competitive marketplace than ever before.

Legal Project Management

Legal project management (LPM), the effective use of technology, people and processes to lower costs, whilst boosting (or at least maintaining) law firm profitability has exploded over the last few years. Whist each firm differs individually, the role of a legal project manager is to look after the operational side of transactions to allow partners to focus on the legal technicalities of the work. By bringing cohesion to complex mandates, they help achieve greater efficiency and cost certainty for clients and firms across a range of matters

Used correctly, project managers can manage both internal communications on a project and some external relations with clients, including anything from scoping the resource requirements before the project starts to collecting and processing client feedback after completion. Some firms involve their project managers more directly with clients on pitches and cost negotiations, as a show of commitment to the project in hand.

Although not a new phenomenon (Baker & McKenzie have been using non-legal project managers on deals since 2010), Hogan Lovells, Herbert Smith Freehills and Linklaters have all made moves to expand their use of project managers in the past 12 months. This demand is also seen in the market, with Herbert Smith hiring a four-strong non-legal project management team from Berwin Leighton Paisner in October.

By offering greater efficiency and certainty on costs, and freeing up billable hours for partners, the better integration and utilisation of legal project managers on deals is a trend only set to grow over time.

Knowledge Management (KM)

The provision of knowledge, information and documentation assistance by law firms to their clients is of growing importance. Since helping one of our financial institution clients recruit their Global Head of Knowledge Management in 2014 and financial institutions and corporates alike looking to improve their own efficiencies and legal infrastructure in this area, the need for law firms to advance their own KM structures is imperative.

Knowledge Management, whether the production of learning and training materials or the internal management of firm documentation, is essential for clients to gain a quality service. Due to the time limitations placed on in-house counsel, from a client’s perspective, a law firm who is continually looking to add value through their KM team and push this agenda will come out ahead of those who are seen as less active and innovative in this area. Furthermore, the ability to offer these services at an international level is a distinct advantage for law firms in gaining significant panel instructions from global businesses.

Beyond the use of KM for purely Business Development and brand promotion, it can also be revenue-generating with the creation of bespoke KM tools to track legal and regulatory developments, such as A&O’s Rulefinder and Navigator at Simmons & Simmons.

As such, Knowledge Management – if structured correctly – can be leveraged with clients to provide a service of better value, and differentiate the firm in a competitive market. Law firms need to develop an outward-facing KM team to work with Partners and Business Development teams, whilst delivering high-quality learning and training provisions for clients.

Business Development

The growth of law firms on an international scale through lateral recruitment, mergers and office openings has thrust the role played by Business Development (BD) into the spotlight both in London and internationally. Our work with clients to build their Business Development teams across jurisdictions has raised our awareness of the importance of having a specialist, integrated and proactive business development function and the investment that firms are making to build their capability in this area.

There have been great strides made in the last ten years by many firms with regards to Business Development and how it is viewed internally. With the continued advancement of the industry, Business Development functions have had to become more connected with the business and move from a back office to a front office advisory function. The expectation and demands of today’s business environment means that law firms are having to recruit more specialised Business Development professionals with industry knowledge to focus on specific sectors and clients. Firms that do not continue to drive the development in this sense will soon be left behind in the market.

For international law firms with growing businesses and complex clients spanning multiple jurisdictions, the role of a coordinated Business Development function can help a firm both continue to increase revenue streams whilst gaining exposure to new clients. As such, the investment made into this function should be seen by law firms as a valuable long term commitment to their clients and therefore their own business.

Client Relationship Management

The way in which law firms manage client relationships is evolving alongside the various advances being made in both Business Development and Knowledge Management. To complement the traditional role of the client relationship Partner, we are regularly hearing more about how law firms are allocating more resource and responsibility to dedicated Client Relationship Managers.

Similar to those in legal project management, these individuals are from a non-legal background and work alongside the relationship partner to add further depth and focus to service and support their clients. Fundamentally, clients of law firms know that whilst having a relationship partner is important, they are still a business generator that have to produce revenue for their firms. Therefore clients visibly see these two roles as complementary to each other, and with a heightened level of commercial and personal service when Client Relationship Managers are employed in tandem by their panel firms.

In-house counsel within our network have noted that firms who have employed dedicated relationship managers have a clear differentiator in the market, compared to those who just employ the client partner model. Having Client Relationship Managers who are dedicated to firm clients, and with a goal to develop, integrate and expand the relationship further, adds emphasis to a firm’s commitment to their clients and their needs both domestically and internationally.

Consulting

The final way in which we have seen law firms look beyond legal services as their main client offering is through the establishment of standalone consultancy arms. This trend turns the idea of bespoke legal advice on its head, as firms give advice to in-house legal teams on how best to manage their legal services and become more involved in the commercial aspects of their clients businesses.

With six such consultancy ventures set up since last year, and firms with more established consultancy services further expanding their offering, each firm has taken a different and distinct approach to building this part of the business to best service their client’s needs. This includes the ability to provide contract lawyers (a service that has ballooned within major law firms since BLP initiated Lawyers on Demand in 2007), to the implementation of more specific technology and IT change management projects (Bird & Bird’s Baseline and Denton’s NextLaw Labs) and even sector specific offerings as seen at RPC Consulting and DLA’s Noble Street.

However, the response of some firms such as Eversheds and Addleshaw Goddard has been to take a more full-service approach, offering wider legal efficiency advice centred on their clients businesses. This includes advice on legal spend, process analysis, legal risk analysis and panel management advice alongside themes already discussed such as legal project management, KM and Business Development.

The expansion of Eversheds Consulting, established in 2010 and which now runs four business lines (a financial services regulatory compliance service, Eversheds Ignite, a contract lawyer service, Eversheds Agile, and a separate flexi-lawyer offering for financial services regulatory compliance clients), is testament to how firms can offer greater service to their clients. With revenue climbing year on year, it pays for firms to be business solution providers and not just legal service providers.

Conclusion

Whilst much is being made currently of firms’ plans for expansion and lateral partner recruitment, it is important to assess the validity of a law firm’s business to support their growth plans. Lateral recruitment and growth can enable and provide increased revenues, yet it is the infrastructure of law firms that will underpin this growth or impede it if it is not fit for purpose.

In the ever changing environment that law firms work within, it is those who continually assess their internal capability and client delivery services that will thrive in this highly competitive global marketplace. Whilst firms continue to judge themselves on their annual PEP performance, there is the potential to remain blinded to the need to address change within their businesses. We understand that there is a fine balance between giving clients what they desire and the costs of running their businesses, however, those that continue to push the boundaries of innovation and client service will stand a better chance of seeing the client recognition that, in the long term, will provide them with a strong foothold to continue to deliver of their firm wide ambitions and revenue growth.

By Tom Spence, Director at Fides Search

Hello and welcome to the Fides Weekly Update. Take a look at this week’s key trends, moves and developments in legal and compliance.

Tweet us @Fides_Search to let us know your thoughts.

1. CMA announces findings into Banking Probe

Recommendations of the UK’s Competition and Markets Authority (CMA) two-year investigation into high street banking were met with criticism upon their release on Tuesday.

Intended to kick-start competition in the sector, where only 3% of personal and 4% of business customers switch to a different bank each year, many hoped the inquiry would break the stranglehold of the ‘Big Four’ on high street banking, who continue to control 77% of the current account market and more than 80% of small business accounts.

Short of this move, the core recommendations of the CMA centred on the use of technology to enable customers to see hidden charges applied to their accounts, making it easier to compare financial products and shop around for the best deal. Dubbed the ‘Open Banking Regime’, the CMA want banks to set common standards for the exchange of product and customer data so that third-party developers can create apps in which customers can see all their financial products regardless of provider.

The recommendations also addressed the £1.2 billion banks make per year in unarranged overdraft charges by making banks set a monthly cap on such charges and sending alerts when customers become overdrawn.

However, criticism has been levied at the CMA for not going far enough in its duty to protect consumers, especially in relation to the unauthorised overdraft limits banks can levy. By leaving this amount to the banks discretion (rather than setting an industry standard) and continuing to allow banks to charge large fees for unauthorised overdrafts, the CMA is arguably neglecting the consumers that need help from them the most.

The report has also drawn heavy criticism from challenger banks for failing to ease capital requirements for these institutions and not forcing banks to publish the charges associated with “free-when-in-credit” accounts. Even the banking lobby group, the BBA, while welcoming much of the report, questioned whether it had done enough for these institutions.

Finally, many challenge the core precedent of the regulator’s findings that new technology will prompt greater competition. The fact that bank’s often struggle to keep their own systems running, let alone make data accessible to third parties, have led many to suggest a ‘technological smokescreen’ has been deployed by the CMA to distract from its failure to back a break-up of the Big Four.

The eleventh inquiry launched into the British banking system in the past 17 years, it is hard to see how the CMA’s recommendations will bring about wholescale change and greater competition to the sector in this instance. The onus will still very much be on “challenger banks” to devise new and innovative ways to draw customer’s way from the traditional Big 4, however, with many of the challengers already having technology at the centre of their organisations they perhaps may be better placed to deliver change.

2. Brexit Aftermath: All attention on Ireland

Following on from the June 23^rd decision to leave the European Union, all attention was on Ireland this week as Legal Business revealed high numbers of applications to the Irish bar continued, with Freshfields and Eversheds making up the bulk of admissions.

The total number of admissions to the Irish Law Society currently stands at 319 for 2016, already trebling last year’s total of 101, with the body receiving approximately 30 queries a day from UK solicitors since the referendum. Of this, Freshfields has registered approximately 130 lawyers so far this year, whilst Eversheds has had about 100 lawyers admitted.

Many of the top UK and international firms with strong EU and Competition law practices have rushed to admit their UK qualified solicitors in Ireland in order to maintain their legal privilege to argue before EU tribunals by ensuring their qualification in a member state.

However, it is also understood that a number of UK firms are considering a Dublin base following Britain’s decision to leave the EU, with financial services and funds being two areas becoming especially lucrative following the Brexit vote.

Yesterday saw the announcement that Pinsent Masons were on the hunt for office space in Dublin to complement its existing offering in Belfast and provide a full UK and Ireland presence for the firm. This is likely to be achieved through a targeted greenfield site as opposed to a formal merger, with Pinsents already having referral relationships with a number of firms in Dublin.

Eversheds meanwhile, who already have a full-service offering in Dublin, announced the expansion of its consulting business in Ireland to allow continued service to EU clients.

3. Movers & Shakers of the Week

Appointments

Burford Capital hires ex-Fried Frank competition head as new MDLitigation funder Burford Capital has hired former Fried Frank Harris Shriver & Jacobson competition head Craig Arnott as its new managing director.

Moves

Clyde & Co makes Trade Finance hire from Reed SmithPartner Robert Parson returns to Clyde & Co from Reed Smith to strengthen their trade finance practice

Squire Patton Boggs recruits Communications and Competition Law expertFrancesco Liberatore joins Squire Patton Boggs in London from Jones Day

Alternative legal services provider Halebury brings on three in-house lawyersJan Hawgood (Chevron), Katherine Kennedy (VocaLink) and Neeta Mashru (BBC) join Halebury’s 31-strong team

RPC recruits RBS consultant for general counsel consulting arm RPC PerformSpecialist in management consulting, Varun Srikumar joins RPC Perform to advise on strategy, external legal spend assessments, cost reduction programmes and legal technology.

Allen & Overy hires Simmons IP head in LondonHead of IP Marc Doering set to joins Allen & Overy, as the firm labels the practice a priority

Mergers & Alliances

Kennedys mergers with marine boutique Waltons & Morse

Japan’s MHM merges with Thai firm C&T in first international overseas merger of its kind

Office Openings

White & Case to launch in Australia

US firm Nixon Peabody launches in Singapore

Hello and welcome to the Fides Weekly Update. Take a look at this week’s key trends, moves and developments in legal and compliance.

Tweet us @Fides_Search to let us know your thoughts.

1. Retaining star performers: Ashurst approves new remuneration structure 

In a bid to steady a seemingly unsteady partnership, this week saw Ashurst vote in changes to its remuneration structure to better reward strong performers and encourage collaboration in a time of financial instability.

The changes add an extra 10 points (approx. £150,000) to the firm’s 25-65 point equity ladder and introduce a performance-based bonus pool to reward equity and non-equity partners. The firm will also award greater equity share to salaried partners, boosting the percentage of their pay that is linked to the firm’s profits (although the final ratio remains undisclosed).

This comes at a turbulent time for the firm, which in July announced a 19% plunge in PEP to reach an 11 year low to £603,000. The 2015-16 financial year also saw revenue drop for a second consecutive year following the firm’s merger with Blake Dawson, falling by £28m (10%) to £505m and the announcement that the firm is going to close its Rome and Stockholm offices.

It also follows a period of significant partner exits, with restructuring partner Diane Roberts leaving for Reed Smith, whilst Latham & Watkins hired financial regulation head Rob Moulton and restructuring partner Simon Baskerville. In April, financial regulatory partner James Perry left for Gibson Dunn & Crutcher (reuniting him with former Ashurst senior partner Charlie Geffen) with capital markets partner Jonathan Parry and London disputes head Mark Clarke moving to White & Case. Last week, CFO Brian Dunlop also resigned from his position following three years at the firm.

Changes to remuneration systems in order to better reward, retain and attract dealmakers has been utilised by many UK firms in recent years in order to compete with the aggressive growth strategies employed by US firms in London.

Last year saw Freshfields break its lockstep to bring Kirkland & Ellis high-yield star Ward McKimm to London, following tweaks passed in its remuneration in 2014 and 2012 to attract high performing partners in New York and Asia. Clifford Chance also voted through proposed changes to its lockstep, stretching the top of the ladder by 15-30 points in order to retain star performers.

Similar wars in pay have been seen more recently at the associate level in both London and New York following Cravath’s decision to increase first-year associate pay to $180,000 (£124,000) – a move adopted by many US firms for their UK associates also – with Allen & Overy, Clifford Chance, Freshfields and Linklaters raising associate salaries in New York whilst also increasing their associate compensation levels in London.

Questions remain as to whether these changes to remuneration will be effective in retaining and attracting the partners needed for Ashurst to recover its financial performance. Will increasing the equity ladder and introducing a bonus pool be enough to create the sufficient buy-in and collaboration from partners if the firm remains unprofitable compared to its US peers?

Whilst the tide of change in London’s legal market continues to rage with never-ending US raids on leading UK firms, and the added challenge of how Brexit will impact future business, the ability for firms such as Ashurst to recover their standing and reputation in London and adapt to the new European landscape will be vital if they are to continue to challenge at the highest level.

2. Och-Ziff face fourth largest ever FCPA settlement for bribery scandal

Och-Ziff are preparing for a hefty financial sanction by adding $214m to its reserve for a settlement with the Foreign Corrupt Practices Act (FCPA).

Och-Ziff, one of the world’s largest hedge funds, has been under investigation by the US Department of Justice (DoJ) and US Securities and Exchange Commission (SEC) since 2011 for possible violations of the FCPA, the most widely enforced anti-corruption law. The investigation is exploring alleged bribery of Libyan and other African government officials in exchange for investment in Libya’s sovereign wealth fund.

The $214m added reserves for a settlement brings the total to $414.3m which, if enforcement action was indeed taken, would make it the fourth largest penalty in history by the FCPA and the second largest imposed on a US company.

The hedge fund has incurred some serious consequences as a result of the scandal, posting a second-quarter loss this week of $184.3m and, once again, failing to pay out a dividend to investors. News that the investigation may be coming to a close has, however, caused Och-Ziff’s share price to rise by up to 15 per cent.

Goldman Sachs announced this week plans to liquidate their Och-Ziff run multi-strategy fund, which will amount to a $350m loss of investment for the hedge fund. Och-Ziff head Daniel Och spent a decade at Goldman Sachs, after which he retained a long-standing relationship with the bank, bringing them in as one of the hedge-funds biggest clients. Losing this investment is just further cause for concern for Och-Ziff, as clients have withdrawn $3.1bn worth of investment from their funds in the last 12 months.

During the investigation, the DoJ and SEC have been particularly focused on former London-based head of European investing Michael Cohen, who also managed Och-Ziff’s African investments. Cohen oversaw a fee paid to a London middleman, who had close ties with Gadhafi’s spy chief and subsequently passed on some of the fee to a Tunisian broker connected to Gadhafi’s son Seif al-Islam. Och-Ziff has commented that they were unaware of parts of the fee being passed on to anyone else.

Last year DoJ and SEC, along with the FBI, voiced their plans to increase enforcement in foreign corruption and bribery, with the Wall Street Journal reporting 10 new hires into the FCPA unit of the DoJ.

This could be one of the first of many cases within the funds space as we see the regulatory and financial crime microscope slowly shift from banks to funds. Investment banks have significantly bolstered their anti-bribery & corruption teams in recent years and continue to do so amid increased scrutiny and high fines. Moreover, when the FCA release their findings from the asset management review at the end of 2016, it will be interesting to see which areas are most exposed to future financial crime failures and how this will affect the need for extra resource.

Appointments

Freshfields appoints global head of finance
Real estate finance partner Simon Johnson will become the next global head of finance at Freshfields Bruckhaus Deringer as David Trott leaves this post in September

New London managing partner at Bakers
Baker & McKenzie has elected tax partner Alex Chadwick as the next managing partner for their London office, replacing Paul Rawlinson who will become global chairman of the firm

Moves

KWM makes real estate hire in Paris
White & Case senior associate Guilain Hippolyte joins King & Wood Mallesons’ Paris office to sit in their real estate practice as a partner

Lathams gains finance partner from Slaughters
Latham & Watkins has made a City hire with Sanjev Warna-kula-suriya, a structured finance partner from Slaughter and May.

Quinn Emanuel sets up London white collar practice
Robert Amaee exits Covington & Burling, moving to Quinn Emanuel Urquhart & Sullivan to head up their new white-collar and corporate investigations practice in London

A&O expands IP practice
Allen & Overy has brought in Simmons & Simmons head of intellectual property Marc Doering in London

Olswang loses telecoms head
Head of telecommunications at Olswang in London Purvi Parekh leaves the firm, with her next move unknown

Mergers & Alliances

Osborne Clarke launches Singapore offering through association with local firm Queen Street Legal

With the level of competition continuously increasing in the legal industry, we are constantly challenging ourselves to figure out ‘what good looks like’ and how we can separate ourselves from the rest. Ultimately, it boils down to how you keep a client happy and deliver a first-rate service, as well as constantly testing ‘is there a way we could be doing this better?’

From advising general counsels on their dispute resolution and regulatory legal services, we found that major institutions are often selecting their law firm advisers not on the basis of technical expertise alone, but on their ability to deliver a solutions orientated service.

The challenge in defining quality of service is that each client has a different perspective, and ultimately the barometer moves depending on which client you’re dealing with. This can be characterised by the balance of good value for money, strong technical expertise and the maintenance of good client relationships across each of the firms’ jurisdictions. No longer does a firm with a lower charge out rate escape the high standards expected from those with a higher rate, with many of the GC’s that we have spoken too suggesting the exact opposite.

Through our discussions, we have managed to outline below the four key trends that GCs find most valuable from their law firms.

It’s all about the individual

There is a preconception that the elite firms in the market offer the best service, whereas the view from those instructing was quite different. When we spoke to a handful of senior decision makers within financial regulation to find out if they were altogether happy with the service they received from the Magic Circle, the question was met with general acquiescence. Notably, when the same question was asked of firms with specific regulatory expertise outside of the Magic Circle, such as Simmons & Simmons and Norton Rose Fulbright, they were not only satisfied with the capability of these firms, but also praised them for their level of service in this area.

What made these firms stand out in the eyes of their clients was the performance of individual partners, offering greater value and innovative solutions. This has enabled them to build a solid reputation for offering good client service. Regardless of a certain platform’s size and scope, if your client can see your dedication to their business, it will always be recognised.

Take inspiration from the elites

So how do elite law firms differentiate in their service to clients and how can this be emulated?

Simply put, the pre-eminence of the Magic Circle in today’s legal environment can be distilled down to their international reach and delivery of a consistent, reliable global service. Therefore we have identified one of the key markers for quality of service being the resource of law firms to be able to act whenever an issue arises, and to do so with the same quality of service as would be expected from any other of their international offices and on par with the leading domestic offering.

Law firms must market their international capability along the lines of consistency of service across their respective regions. However, in the modern legal landscape these international offices will only thrive if the firm’s global clients trust the quality of the people in other jurisdictions. This has a cumulative effect on the other offices in the network, and can under-pin or undermine future business development if a standard of service to clients cannot be maintained.

PEP means nothing

One value law firms often measure themselves by is Profit per Equity Partner (PEP). PEP is an indication of profitability but it is misconstrued to think that the greater the PEP figure the greater the level of service. In fact we could argue the potential for an inverse relationship between PEP and service. Does a high PEP figure always attract the best calibre of lawyer, is it a barometer that the lower your PEP the worse the lawyering is? No, is the simple answer.

Increasingly, firms outside of this elite are gaining a seat at the table, and are challenging the market by focusing on service and delivery and a value-based proposition to be executed by quality lawyers.

We consistently witness the diversification of panels, as major institutional clients recognise the increase in value and service quality when you instruct an alternative to the Magic Circle. Efforts have been made by these firms to strategically invest in human capital, establish meaningful client relationships and improve service levels through the use of technology and innovative resourcing models.

Hire the right people

Strategic hiring is a key enabler for firms aspiring to improve their service and in turn market share. This can be achieved by being attuned to your clients’ needs and developing your capability in whichever areas are best suited to serve your client. Although this is more of a long-term approach to improving the service you deliver, it is a great method to further reinforce the long-lasting relationship you have built with your client. One example of this is how US firms are expanding their regulatory practices in London, by adding key regulatory figures to their offices in order to serve their top banking clients. These firms include Gibson Dunn & Crutcher, with the hire of James Perry from Ashurst, Latham & Watkins, who brought on Rob Moulton also from Ashurst, and Cleary Gottlieb Steen & Hamilton with the hire of Bob Penn from Allen & Overy.

Whilst these significant ‘headline making’ hires are important and provide a clear strategy and ambition to not only clients but the legal marketplace, other lower profile hires can be just as effective. We have seen through certain strategic hires both in London and internationally whereby firms invest in younger partners or Counsel type figures there has been immediate reward through client instruction and appreciation of talented sensible hires. This point is important to acknowledge as while the ‘headline making’ hires are pleasing on the eye and from a PR perspective, well thought through and strategically planned investments whether big or small will always make an impact on clients.

The law firm market is becoming less binary, and traditional law firms are needing to work harder to retain and build new client relationships. With increasing pressure coming from new legal services providers, such as the Big Four, it is important to ensure you’re keeping your clients happy by not only providing reputable practice area expertise and geographical presence, but by convincing them of your attentive client service, showing you are truly observing and listening to their needs.

If you would like to find out more or discuss this topic further please contact Director Ed Parker, T: +44 (0) 20 3642 1872 E: eparker@fidessearch.com

Welcome back to the Fides Weekly Update. Here we provide you with analysis of the week’s biggest news stories in legal and compliance. Scroll down to see our regular Movers & Shakers of the week.

This week:

1. KWM bailed out by partners with £14m cash injection

Yesterday saw the announcement that King & Wood Mallesons (KWM) will receive a major boost in capital as partners vote to inject £14m into the firm.

With 98% of the legacy SJ Berwin partnership voting in favour of the move, this comes as the third stage of the firms’ strategy to strengthen its business in Europe and the Middle East. This included a strategy overhaul in which the firms’ 17 practice areas were streamlined into three core divisions and a partnership review due to axe 15% of the European partners.

To recapitalise the firm, KWM’s partners have been asked to pay in an extra £4,000 per point they have on the 20-60 point remuneration ladder, doubling each partners’ total capital contribution to the business from £4,000 to £8,000 per point. This means that those on the bottom of the ladder will pay around £80,000 into the business, while those at the top of the equity will inject £240,000 into the firm with partners given the option of injecting the cash or allowing the sum to be deducted from their share of past and future profits.

Meanwhile, salaried partners have been asked to pay capital contributions for the first time in the firm’s history. Despite not traditionally being assigned profit points or being able to vote in partnership decisions, salaried partners have been asked to contribute £60,000 to the business.

Many consider this long overdue as it follows a period of increased financial strain that has seen KWM increase its loan with Barclays by £5m to £25m. The firm also moved to a monthly profit distribution system in February following repeated delays in quarterly payments, having only 25% of the profit payments for 2015-16 being made before this date. The firm also faced a significant hike in its London rent after a 10 year deal made by legacy SJ Berwin came to an end in May.

Unsurprisingly, this has led to a further string of partner exits across KWM’s European offices who have been picked up predominantly by US firms. The departure of the region’s COO Rachel Reid for Taylor Wessing in January as been followed this month with the move of former chief finance officer Jeremy Cross to Cadwalader Wickersham & Taft, with litigation duo Elaine Whiteford and Greg Lascelles joining Covington & Burling.

On the continent, investment management partner Hilger von Livonius moved to establish the Munich office of K&L Gates, whilst the firm lost a six-strong private equity team in Paris – including KWM Paris managing partner Christophe Digoy – who left to launch the office of Goodwin Procter.

Moving forward, the question remains as to whether contributing capital will stem future partner exits or is rather indicative of an inherently dysfunctional business model. Increasing the capital contribution of partners – especially salaried partners – enhances vested interest in the firm’s success and makes lateral partner exits more challenging due to the increased capital partners hold in the business. However, with the continued loss of prominent lawyers across Europe, it will be interesting to see whether this phase of their strategy leads to long term success or merely plugs financial issues in the short term.

2. FCA proud supporters of innovation

Last week, the Financial Conduct Authority (FCA) kicked off London Fintech Week, affirming their plans to get to grips with regtech and announcing their objective to foster innovation rather than obstruct it.

Speaking at the annual fintech conference, Christopher Woolard, Director of Strategy and Competition at the FCA, said that one of the regulator’s top priorities in 2016/17 is to facilitate innovation in ‘regtech’ – technologies that will help financial services companies fulfil their regulatory requirements. Woolard claimed that it is beneficial to both consumers and regulated companies to improve the technology used in achieving regulatory compliance. For banks and financial institutions, regtech could make regulatory reporting much more transparent, whilst also minimalising the time and resources utilised. Conversely, for consumers, this type of innovation has the potential to change business models and increase competition, allowing for better and more efficient services in the market.

The FCA is attempting to stay ahead of the curve by encouraging the integration of ground-breaking technology with current regulatory systems. Their response to the emergence of technology has been promising, with the UK regulator organising a number of regtech roundtables; collaborating with fellow regulators on enabling innovation, and issuing a Call for Input in order to learn more about the potential compliance solutions regtech could offer.

Meanwhile, the more pressing concerns for the FCA has to be regulation of the fintech space. Fintech companies are struggling to navigate through the complex regulatory landscape, as many of their products cannot be clearly defined under existing regulation. Creating and implementing a compliance framework is challenging under these conditions, and the FCA must adapt regulation to suit the needs of fintech companies if they want to avoid hampering innovation.

The FCA have noted the need to consider changes to regulation for the emerging fintech market and launched Project Innovate, an initiative that helps those developing new products to better understand financial services regulation, whilst also learning how regulation can be adapted to suit new products. One of the most well received applications from this project is the regulatory sandbox, a programme where businesses are able to test new innovations in a live environment before applying for FCA authorisation.

It is clear disruptive technology is here to stay in the financial services industry, and has become increasingly prominent in regulation. Within compliance, the furthest advancements are being made in automating AML & KYC processes, whilst innovation in data analytics capabilities is also advancing quickly. With the amount of activity in this space, we expect that this innovation will make fundamental changes to the regulatory landscape and possibly ease some of the compliance burden for financial institutions. We have already seen where technology has affected regulatory reporting and this is perhaps the start of a wave of technological changes which can affect financial services broadly.

Movers & Shakers of the week

Moves

Latham appoints senior A&O finance partner 
Stephen Kensell departs Allen & Overy after 22 years at the firm to join Latham & Watkins in their London office

Ashurst loses CFO
CFO Brian Dunlop leaves Ashurst, yet to take on another opportunity

Lloyds finds new GC from FCA
Tom Spender has joined Lloyds Banking Group as its new general counsel for group litigation, regulatory and competition legal. He joins from the Financial Conduct Authority where he was director of retail and regulatory investigations.

Bakers hires four partner-strong team in Germany
Baker & McKenzie have strengthened their German offering with Taylor Wessing corporate partners Thomas Dormer and Tim Heitling. They will be joined by senior associates Claire Polte and Daniel Neudecker, who will also join the firm as partners.

Mayer Brown boosts Brussels capability
Former Hunton & Williams partner Geneviève Michaux has moved to Mayer Brown in their Government & Global Trade practice in Brussels

HFW bolsters insurance practice in London
Leading insurance partner Christopher Foster has joined Holman Fenwick Willan’s insurance and reinsurance practice from Herbert Smith Freehills’ in the City

Office Openings & Closings

Pinsents opens in South Africa 
Rob Morson and Shane Voigt have left Bowman Gilfillan to launch Pinsent Masons’ first Africa office in Johannesburg

Mergers & Alliances

Norton Rose forms Kenyan alliance
Norton Rose Fulbright and Kenyan firm Walker Kontos have entered into an alliance, to be formally launched in October

Hello and welcome back to the Fides Weekly Update. Here we provide you with analysis of the top stories in legal and compliance this week. Don’t forget to take a look at the movers and shakers of the week!

Tweet us at @Fides_Search for your comments

This week:

1. This week in Panel Reviews: An Analysis 

Panel reviews dominated the news this week as a number of financial institutions and corporates refreshed their rosters.

Swiss private equity house Partners Group announced an inaugural six-firm panel of international firms to advise on deals across the globe.

Firms named on the panel include Latham & Watkins, Clifford Chance, Milbank, Tweed, Hadley & McCloy, Ropes & Gray and DLA Piper.

Whilst Milbank, DLA Piper and Clifford Chance are longstanding advisers to Partners Group, the inclusion of Latham & Watkins and Ropes & Gray follows strategic investment by the firms in Europe and New York.

This includes key lateral partner hires of Burc Hesse from Clifford Chance and ex-Linklaters head of private equity Rainer Traugott to Latham’s Munich office, and the move of David Blittner from Weil, Gotshal & Mangers to Ropes & Gray in New York – with both Linklaters and Weil Gotshal missing out on final panel selection.

Meanwhile, Edinburgh based asset manager Standard Life Investments (SLI) expanded its panel from three to five firms with the addition of Shepherd & Wedderburn and commercial real estate specialists Maples Teesdale.

Holding existing client relationships with Ignis Asset Management which SLI acquired in July 2014, these firms join Addleshaw Goddard, CMS Cameron McKenna and Herbert Smith Freehills to be appointed to the panel for five years.

Largest education company and book publisher in the world Pearson also announced the line-up for its first US M&A panel, with Cleary Gottlieb Steen & Hamilton, Dorsey & Whitney, Goodwin Procter, Morgan Lewis & Bockius, and Sullivan & Cromwell all making the cut.

The US panel, established to deal with litigation, compliance and government investigations follows the completion of the review of the UK panel last year which involved it being divided into sub-panels by practice area for Corporate/M&A, IT/ Commercial and Employment.

Beyond expertise and experience in the M&A space, the panel review also focused on value, flexibility in billing and alternate fees, and diversity and was completed with the help of management consultancy Accenture.

This followed the announcement that BT had launched a formal panel review for its UK legal advisers and intends to create its first (non-UK) international legal panel by the end of the year.

These panel appointments are representative of wider trends in the legal sector predominantly driven by clients’ needs to cut costs.

Where smaller institutions such as Partners Group and Standard Life look to expand their panels in search of greater value, global corporations such as Pearson and BT have moved to streamline and specify their panel appointments by practice area. Last month saw banking giant Barclays reduce the total number of firms on its global panel by two thirds to cut costs.

As with all panel appointments, although pre-existing client and individual partner relationships are clearly important, clients are more willing to consider more niche market players or alternate legal providers that will offer greater flexibility regarding costs and openness to fix fees. With competition for each panel position incredibly high, other differentiating factors such as diversity and provision of thought leadership, training and knowledge management become vitally important.

2. FX rigging charges brings regulatory compliance back under the spotlight

HSBC’S global head of foreign exchange (FX) trading faces criminal charges, along with a former British HSBC trader, for allegedly front-running a currency trade.

On Tuesday, Mark Johnson, global head of FX cash trading based in London, was arrested and charged with conspiracy to commit wire fraud. Former EMEA head of FX trading Stuart Scott also faces charges. The US Department of Justice has accused the traders of “front-running” a currency deal, rumoured to have been carried out by HSBC client Cairn Energy in December 2011.

Front-running is a term that describes how a broker can benefit from a trade at the expense of their clients. In this case, HSBC were aware that their client Cairn Energy had plans to convert 3.5 billion US dollars into sterling. Using this insider knowledge, the two HSBC executives chose to trade ahead of the deal, “ramping” up the price of the currency, after which they carried out the client transaction, and subsequently sold their own currency for a sizeable profit.

This case has been brought to light as a result of the three-year long investigation by regulators into the global rigging of the forex market. In November 2014, UK and US regulators collectively fined a total of six banks, including HSBC, £2.6 billion for the attempted manipulation of foreign exchange rates. This case, however, marks the first time a regulator has brought charges against individuals for FX rigging.

The news of this landmark arrest comes only a few months after the Serious Fraud Office (SFO) announced their decision to drop the investigation into forex rigging. It raises the question of whether this was in fact the right choice as the prospect of convictions was clearly more realistic than they had anticipated.

The SFO have also been criticised recently for the extra funding they receive for lengthy investigations, with claims that the blockbuster funding model, currently employed by the SFO, isn’t the most effective use of resources. However, given that US regulators employ similar funding methods and have built solid cases resulting in criminal charges shows that maybe this additional funding is needed to eradicate fraudulent activity in the banking industry.

This is just a further example of the rise of individual accountability within financial services. Tom Hayes’ sentencing for manipulating Libor interest rates and the introduction of the FCA’s Senior Mangers Regime also demonstrate how we’ve reached the beginning of a new era in the global financial services sector, which attempts to foster a fundamental change in the behaviour of those operating in financial markets.

This insider dealing case has come at a bad time for the bank in light of MAR (Market Abuse Regulation) only coming into effect on 3rd July 2016. The spotlight is sure to be fixed on HSBC and many of the larger trading organisations, which could lead to a similar cases with individuals being the targets as much as the organisations.

Movers & Shakers of the week

Moves

Clydes loses private client partner
Mischon de Reya has hired private client partner Martin Davies from Clyde & Co

Bakers strengthens German offering
Baker & McKenzie have hired a team of four partners in their Berlin office. Former Taylor Wessing corporate partners Thomas Dormer and Tim Heitling will be joining the firm, along with former senior associates Claire Polter and Daniel Neudecker, who will also be joining Baker & McKenzie as partners

King & Wood Mallesons loses further London partner
Covington & Burling has gained a London competition litigator, Elaine Whiteford, who departs King & Wood Mallesons

Jones Day hires four lawyer team in Amsterdam
Jones Day has added partner Mike Jansen to its M&A team in Amsterdam, joining from Baker & McKenzie. He brings with him associates Reinout Bautz, Justus Fortuyn, and David Weinstein.

Office Openings & Closings

K&L Gates opens third office in Germany
Along with their offices in Berlin and Frankfurt, K&L Gates will extend their German offering to Munich as well with the hire of King & Wood Mallesons partner Hilger von Livonius, along with counsels Philipp Riedl and Michael Harris

EY Law launch in Belfast
Axiom director Aaron Stewart has joined EY Law to lead their legal services team in Belfast

DLA opens in Puerto Rico
DLA Piper has opened an office in San Juan with four local partners: Nikos Buxeda, who will assume the position of managing partner, Miriam de Lourdes Figueroa, Jose Alberto Sosa-Llorens and Manuel Lopez-Zambrana.

Mergers & Alliances

Olswang and CMS Cameron McKenna rumored to be considering a tie-up

Reed Smith set to enter a formal law alliance with Singapore firm Resource Law LLP

Partner Promotions

Withers promotes seven, one in the City