Adapting to change

John Cooper says lawyers are set to benefit in the year ahead as financial institutions revamp their regulatory structures in order to combat fraud. John Cooper is a barrister at 7 Stone Buildings.

The lessons to be learnt from such notable crimes as those committed by Nick Leeson and those at BCCI lie in the surprising vulnerability of international banking regulations.

In the UK we have not seen the last of the fraudulent misuse of our banking and financial institutions. With the government keen to leave the financial sector to its own devices, all eyes will be on internal regulation and the ability of financial institutions to combat fraud.

There is sure to be an increase in internal regulation in the near future, with the aim being to keep the banking house in order. It will be the interpretation of these regulations which will concentrate the minds of lawyers. In fact, the development of regulations in the UK presents a fertile area for practitioners in the year ahead.

The amount of impact that fraud is having on financial institutions means that risk awareness and risk management will be key areas for development.

Something else which is going to keep the Bar busy is the Internet with its impact on banking continuing to be immense. Once again, the regulatory implications of conducting business on the Net, whether selling or marketing services, are unclear. In the coming year, however, there should be an increasing regulatory influence in this area.

The Government's net is closing on offshore investments so clients will increasingly need advice on how to adapt to the changing regime.

The important events taking place in Europe cannot be ignored. With the single European currency being introduced in January 1999 and regardless of whether or not the UK is part of the first tranche of countries to embrace it banks of all nationalities based in this country are commissioning legal and financial expertise to guide them through the massive changes about to engulf our financial institutions.

Legal issues relating to the emerging financial markets, particularly in eastern Europe, will occupy a significant number of lawyers in the months to come. With the shift away from the Hong Kong axis to that of central/eastern Europe, a great deal of acclimatisation is on the cards for practitioners.

A further area of interest is the ongoing conflict between the banks and building societies and the Solicitors Indemnity Fund. Previous cases which have pitted mortgage lenders against lawyers include National Home Loans Corporation v Giffen Couch & Archer, which reconsidered the question of whether a solicitor was under an implied duty to provide the mortgagee with information which had not been requested but which might be material to the lending decision.

Although the extent of the duty owed by a solicitor still depends on the mortgagee's instructions, the court will not bend over backwards to assist mortgagees who wish, with hindsight, that they had insisted on fuller disclosure.

In 1998, we are entering a significant period of change as practitioners increasingly take account of the international perspective and the impact which increased regulation will have on all financial institutions.