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