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!
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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
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