The legal general
14 March 2011
24 March 2014
4 February 2014
10 April 2014
16 December 2013
UK: ESMA paper on calculation of counterparty risk by UCITSs for OTC transactions subject to clearing obligations
19 August 2014
The shifting world of regulation is keeping Paul Sweeney and his legal team at L&G’s investment management arm on its toes.
Being in charge of a team that includes two of his former bosses was not exactly what Paul Sweeney expected when he joined Legal & General Investment Management (LGIM) in 2004.
But that is where he finds himself after his two predecessors as head of legal departed - one on maternity leave and the other for lifestyle reasons - before returning to work part-time.
“They’ve both been very useful because they’ve got a lot of corporate knowledge,” explains Sweeney. “It’s very useful having them around
to give the occasional steer on an item that maybe we haven’t dealt with for six or seven years.”
That corporate knowledge and the experience of the team is coming in more and more useful as LGIM grapples with increasingly complex regulation and a more risk-averse environment than ever before.
Sweeney heads a legal team of 11, including nine qualified lawyers and two paralegals. The team sits alongside LGIM’s other service functions, such as compliance and HR, and acts as a source of advice for all parts of the business.
LGIM is the investment management arm of insurance group Legal & General. It is one of the UK’s largest asset managers, running around £320bn in assets under management. Much of this is in pooled pension funds, and pension schemes are the company’s bread and butter.
Although Sweeney has a dotted reporting line to the group’s general counsel Geoffrey Timms, his team operates independently of the parent company’s in-house function. The LGIM lawyers cover a wide variety of issues in an increasingly international market. Sweeney says the role of the legal function has changed and developed considerably since his arrival.
“We go to all the relevant boards, committees and project forums,” he says. “It’s a definite feature now; maybe it wasn’t when the legal team was first established. We’re now involved at a very early stage in all major projects.”
As an asset manager, LGIM has little corporate activity for its lawyers to handle. What it does have is a lot of client work and fund structuring and launching. It must also keep abreast of any new regulations - something that has become more of a focus since the financial crisis.
Sweeney describes a network of “internal clients” within the business. Department heads will seek advice from the lawyer they have the best rapport with or who can best manage their issues. According to Sweeney, LGIM has been lucky to recruit lawyers with mixtures of specialisms. He himself trained at the FSA, so can provide regulatory expertise. Others focus on pensions, Irish or US law and complex financial instruments.
The major issue at the moment and for the foreseeable future is the regulation of over-the-counter (OTC) derivatives, which LGIM uses as part of its investment strategy.
“The world did go a little mad for a while after Lehman [Brothers],” Sweeney observes, noting that the collapse of the US investment bank has led to more scrutiny of the financial instruments that many institutions are using. In particular, the European Parliament is scrutinising legislation to regulate derivatives trading.
“We’re trying to get to grips with that and exactly what the impact will be legally,” says Sweeney. He points to the relationship that LGIM has with its counterparties as a particular focus, saying the regulation could lead to a material increase in the number of agreements it needs to negotiate.
“We’ve got to look out for our clients. The cost of doing this will ultimately be passed down to them by the banks unless some sort of lobbying has some success,” he warns.
He predicts that the issue of OTC clearing will remain on the table for at least the next 18 months. But LGIM is also having to look at US regulation. Although the business is primarily UK-based, there is a small Chicago office that does not currently have its own legal team. Staying on top of the upcoming Dodd-Frank Act is essential, and Sweeney is handling this both internally and with external counsel.
“We’re working quite closely with Shearman & Sterling and our Chicago office to get ready for what we have to do,” he explains.
In the UK LGIM’s legal panel is small and based on historical relationships. Sweeney goes to Eversheds for everyday matters along with Simmons & Simmons for advice on new products and Slaughter and May for “deep thinking” on issues connected to the prudential regulation of insurance companies.
LGIM also uses Dillon Eustace in Ireland, where most of the company’s funds are domiciled. However, Sweeney says LGIM is increasingly finding itself needing advice from firms in other jurisdictions as the business of asset management grows. For this it has used Eversheds’ international offices as well as local firms.
Most of the work, though, is done in-house. Sweeney thinks the team is now fully staffed, but there is always scope for further growth as LGIM’s assets, business and international reach expand in the future.
Name: Paul Sweeney
Organisation: Legal & General Investment Management (LGIM)
Position: Head of legal
Industry: Investment management
Reporting to: Interim CEO and chief operating officer Kevin Gregory
Assets under management: £320bn (as at 30 June 2010)
Legal capability: Nine solicitors, two paralegals
Annual legal spend: £700,000
Main external law firms: UK - Eversheds, Simmons & Simmons, Slaughter and May; Ireland - Dillon Eustace; US - Shearman & Sterling