Welcome back to the Fides Weekly Update. Read on for our analysis of the top legal and compliance new stories of the week. You can also scroll down to see our regular feature: Movers & Shakers of the week.
1. BofE Governor warns of fintech threats
There has been a lot of excitement in the financial services industry about the wave of new technology entering the market. However, along with all the innovation and new products comes a host of regulatory challenges that could pose a threat to the financial stability of our economy, Mark Carney has warned.
In a speech delivered by Governor of the Bank of England Mark Carney at a G20 conference on Thursday, we were made aware of the dangers that financial technology, including robo-advice, can have on financial markets.
Carney argues that the technology used by robo-adviser firms may result in a large number of clients all shifting towards certain assets at the same time. This process, which is defined as ‘herding’, creates market volatility in the short-term by artificially spiking the price of an asset through demand.
Such volatility could bring about systemic risk, as investors often make decisions based on the performance of the wider economy, which in turn would exaggerate the ups and downs. This cycle of fluctuations is termed ‘pro-cyclicality’.
Further to the systemic threat robo-advice presents, Carney also touched on the adaptation of cybersecurity frameworks for financial institutions. The success of fintech has led to a greater reliance and interconnectivity of IT systems, which naturally generates greater operational and cyber risks.
The Financial Stability Board, of which Mark Carney is Chair, has already begun to tackle this issue by carrying out a stock-take of existing cyber security regulation. The results of this investigation can be found here.
There is no doubt that the fundamental processes of financial institutions are changing. They are beginning to service clients better than ever and developing products that will permanently alter traditional banking activities. In his speech, Carney praised the Financial Conduct Authority for the efforts made so far in seeking more suitable methods of regulating fintech, with Project Innovate and the regulatory sandbox contributing to our objectives of attracting new businesses to UK and making London the fintech hub. But there remains numerous uncertainties when attempting to implement a risk framework that is fit for purpose and doesn’t leave an institution exposed to potential misconduct.
How easy it will be to regulate these new systems and to what extent they can be abused remains to be seen. Nevertheless, it’s encouraging that regulators and policymakers alike are attempting to stay ahead of the curve when it comes to technology, which is a positive sign that innovation is here to stay in the financial sector.
2. The aftermath of KWM: mass team hires the new normal
In the aftermath of KWM’s fall into administration last week, attention has shifted to the large team hires, where these teams went and what business this will provide to their new firms.
The discussion of this topic is contentious, with an interim report released this week to creditors by KWM’s administrators Quantuma citing that ‘Administration was the only resort’ following the amount of partner and staff exits in 2016, with all but 33 partners exiting the firm’s European business.
The motivation of the firms who made the largest team hires – Reed Smith and Greenberg Traurig – appears to be access to the KWM network.
According to Ashfords partner Sam Palmer, who as solicitor manager to Quantuma has been dealing with the transfer of client files since the practice went into administration, only around 5% of clients decide not to follow partners to their new firms and decide to take their work in progress elsewhere.
The administrator’s interim report seems to confirm this, noting that as of the 10th January the sales the administrators completed after their appointment included the work in progress (WIP) and accounts of six partners to Greenberg Traurig, seven to Goodwin Procter, eight to DLA Piper, 11 to KWM China and 12 to Reed Smith.
However, with the former partnership and KWM now so dispersed, it will be interesting to see which partners manage to retain their key client relationships.
Greenberg Traurig yesterday announced that it had gained 10 new clients from its hire of a six partner, 25-lawyer team from KWM in London.
The team – which includes real estate funds partners Steven Cowins and Marc Snell – has brought in the following private equity funds clients: Cain Hoy, CBRE Global Investment Partners, Europa Capital, M3 Capital Partners, Paloma Capital, Revcap, Brockton Capital and Rockspring, as well as retail giant Westfield and British Airways Pension Fund.
Despite being known for its real estate offering in the US, this builds Greenberg’s practice in London, which has done little private equity and real estate work to date and no work with funds. This also follows failed merger talks last year with Berwin Leighton Paisner over differences in culture.
Much has also been made of the 50 lawyer team hire to Reed Smith – the largest team move from KWM – to strengthen its financial services regulatory, corporate and private equity practices in the UK, France and Germany.
At the core of this hire was the acquisition of a four partner financial services regulatory team under Tamasin Little, and the addition of four corporate partners to specialise on Private Equity and Funds.
Building out the corporate practice especially is understood to be a strategic goal of the firm, although it is questionable of the 17 partners that Reed Smith hired, how many of them were working with their own clients as opposed to serviced KWM clients.
As always, only time will tell if these large acquisitions are successful and integration into the acquiring firms client base and culture will be the determining factor. With the collapse of large elements of the KMW network, we are pleased to see that many lawyers have managed to secure their immediate future with moves and we hope the integration into their new firms is as seamless as possible.
Movers & Shakers of the Week
Addleshaws re-elects managing partner
Managing partner John Joyce has been re-elected for a second term at Addleshaw Goddard
GC assigned to open banking group
The Open Banking Implementation Entity, funded by the UK’s nine biggest banks, hires former Lloyds and Halifax legal head as its first general counsel
Freshfields NY office loses top litigator
Securities and commercial litigation partner Marshall Fishman departs Freshfields Bruckhaus Deringer in New York to join Goodwin Procter as its head of New York commercial and financial litigation practice
A&O makes Asia IP hire
Allen & Overy has hired former China general counsel for pharmaceuticals giant AstraZeneca David Shen, who will join its global IP practice in Shanghai
Hogan Lovells boost FS practice with top lawyer from the regulator
Claire Lipworth is set to join Hogan Lovells in London as a financial services partner. Claire was previously chief criminal counsel at the Financial Conduct Authority for three years
Paul Hastings expand Paris offering with KWM real estate head
Former EUME real estate co-head Jean-Louis Martin is to join US firm Paul Hastings in its Paris office from King & Wood Mallesons, taking with him three fellow associates.
TPG hire new legal chief
Private equity firm TPG has hired Bradford Berenson in San Francisco as the new general counsel. He joins from GE where he served as its head of litigation and government investigations
KWM practice head to join Covington
Covington & Burling will hire European head of fraud and investigations Ian Hargreaves from King & Wood Mallesons, where he will be reunited with five other former KWM partners
EY bolsters Frankfurt office
EY Legal’s Frankfurt office gains KWM’s co-managing partner for Germany Stefan Krueger, who will sit in its TMT practice group
Office Openings & Closings
Mergers & Alliances