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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1). Basel IV draws a line under financial crisis
The final set of rules to Basel III regulation, commonly being termed Basel IV, was finalised on Thursday. Being marked as the end of the post-financial crisis reforms era, bring to a close the barrage of Basel regulation that has brought to the financial services industry.
After a year’s worth of talks, the Basel Committee on Banking Supervision reached an agreement on the final reforms to Basel III. This section of the regulation concerns the variations of risk-weighted assets such as mortgages, and aims to restore credibility in the calculation of such assets. Creating a standardised approach to credit risk and operational risk will allow for easier comparability between banks’ capital ratios, which will build resilience into the banking system and ultimately address the issues that led to the financial crisis.
The framework is expected to be implemented over the 2022 to 2027 timeframe and will likely affect European banks more than US banks. This is due to the high number of mortgages that sit on a European bank’s balance sheets, whereas these kinds of loans are commonly offloaded through securitisation in the US.
Banks have spent the last two years lobbying to use their own internal models to assess risk. These reforms have determined that a banks risk weighting of an asset must be at least 72.5 per cent of regulators’ estimates, which are defined by standardised models. No global bank representative is yet to comment on these requirements.
You can read the publication on the Basel III reforms here.
2). Bakers to consolidate profit pool across three regions
International law firm Baker McKenzie is set to consolidate its 77 offices into three profit centres, as revealed by The Lawyer yesterday.
This process is understood to have started five years ago with the integration of Baker’s US and Canadian offices into a single profit pool, with the Asia Pacific being the second region to embark on this transformation. As of mid-2016, 17 APAC offices had been consolidated into five profit centres, where Australia, Japan, the Philippines and Taiwan remain separate financial entities.
EMEA is the latest jurisdiction to undergo consolidation, with the firm’s Germany and Austrian offices already fully financially integrated. Baker’s Paris, Luxembourg and Casablanca offices are also understood to have made the move to form one single profit pool.
Other offices in the region, which share similar market conditions and financial status, are understood to be adopting similar changes and are in the process of consolidating their profit pools. The medium term plan for the firm is to have the EMEA region to move towards a single profit pool where permissible, however regulatory requirements in certain countries such as Turkey and the Philippines prevent full financial integration being permitted.
This is part of a broader integration across the firm more generally to align Baker’s offices to its global brand. Regional integration should make it easier to work across borders, and move people across offices more seamlessly, although the implications for individual partner’s earnings post-integration are unclear. EMEA and the Americas continue to be the highest performing regions, generating 37 per cent (or ($987.9m) of revenue apiece, with Asia Pacific representing 26 per cent ($694.2m).
Regional integration such as this addresses the mooted criticism that Baker McKenzie struggles to make the most of its scale, specifically in relation to maximising cross-border client relationships and revenues. It will be interesting to see if the consolidation of P&L centres will improve in both the cross-border client delivery and the institutionalisation of clients currently engaging with the firm in a limited number of offices. With size by headcount and revenue being two barometers readily cited by industry insiders as a benchmark of a firm’s global standing, time will tell if this alignment of P&L gives the firm greater levels of profitability through adopting a centralised approach.
3). Movers & Shakers
Tristan Hall joins the London office of CMS
DAC Beachcroft (DACB) has hired a team of two partners and four associates from the London office of US firm Sedgwick, ahead of its closure in January. This includes international property and casualty team head Mark Kendall and litigation dispute partner Duncan Strachan.
Hogan Lovells partner Andrew Crook and HSF Mark Currell will join the magic circle firm’s Australian outpost next year
Kennedys has hired three more lawyers from Mayer Brown’s London insurance team, including partners Ingrid Hobbs and Andrew Westlake, taking its total hires from the US firm to five in recent weeks.
Mergers & Alliances
Office Openings and Closings
US firm Bracewell has launched a London disputes practice with the hire of Damien Watkin from McDermott Will & Emery and John Gilbert from K&L Gates.