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
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
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.
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