Regulatory change, compounded by Brexit, is just one of many challenges faced by in-house lawyers in financial services.
These were the issues under discussion at The Lawyer’s in-house financial services conference in London, attended by over 100 in-house lawyers.
The conference was chaired by former OneSavings Bank general counsel Zoe Bucknell, and speakers included Standard Life head of conduct and compliance Peter Tyson, HSBC deputy general counsel of data privacy and digital Cameron Craig, and Financial Conduct Authority (FCA) competition director Deborah Jones.
Jones kicked off with a snapshot of the key issues on the regulator’s agenda, including pensions, financial crime and technology. The FCA is also looking at industry culture and conduct, particularly after the Libor and forex scandals.
“An open dialogue is key,” said Jones. “It’s important we don’t lose our focus amid Brexit concerns and we need better regulation.”
The FCA aims to make London the capital of fintech, and innovation played a key role at the conference. EY’s director of legal risk, Matthew Whalley, spoke about artificial intelligence (AI) and contract robotics in the legal industry.
“Technology is an immature market and you need to invest time to make sure products work for you,” he said. “Do you have a strategy to show how technology can help you deliver a better service to your business? We don’t want a whole lot of projects that don’t succeed.”
The Lawyer asked audience members through an interactive poll how developed their knowledge of AI was and whether they knew how to apply a legal IT strategy. Over three-quarters of the in-house lawyers present said they had a basic understanding of AI, but just 25 per cent had more than a basic knowledge of applying and putting an IT strategy in place.
Roundtable discussion points
During the day, delegates were able to attend roundtables on issues such as the use of legal data by in-house counsel, the impact of MiFID II and strategies for minimising exposure to financial crime. Groups were led by in-house and private practice lawyers including Mishcon de Reya partners Adam Epstein and Sharon Tan, Société Générale’s head of financial services regulation Anthony Hainsworth, and D2 Legal Technology managing partner Akber Datoo.
One of the roundtables focused on the Senior Managers Regime (SMR), which was a theme of the conference. Conference chair Bucknell said “some financial services lawyers appear to be scared of SMR and that concerns me”, while another panellist said SMR “worries me a lot”.
The relationship between legal and compliance was also addressed during the conference, focusing on the pressures on legal counsel and whether total visibility is needed between the functions.
“Culture and conduct is top of the agenda for financial services industries and regulators,” said Standard Life’s Tyson. “It’s important for people to speak out if they are not happy.”
Brexit was another key focus during the day. A Brexit clinic led by Linklaters ran for two hours, enabling in-house counsel to talk to partners Nadia Swann and Harry Eddis about the implications, best practice and compliance challenges.
The day ended with Cicero Group executive chairman Iain Anderson speaking about what happens next post-Brexit.
Holy grail of merging legal and compliance team insights
Who would want to be a general counsel in financial services right now? The paradigm shift in regulatory scrutiny has already signalled legislative and regulatory risk as a top priority for financial services firms. That has now been exacerbated by Brexit. Little wonder then that it was standing room only at The Lawyer’s inaugural In-House Conference for Financial Services.
The pressure on organisations to conduct business transparently has increased the strain on legal and compliance departments. Failure to comply with laws and regulations carries serious consequences, but compliance is not an exact science. The law is intensely moral in its goals, so the way it is applied is complex and open to interpretation across different jurisdictions. Also, the volume of law and regulation printed each year grows at an astonishing pace. And now multi-national corporations are having to ask already over-stretched legal and compliance teams to add their voice to Brexit impact analysis – as well as the prospect of being included in Senior Managers Regime and Senior Insurance Managers Regime.
Making the right judgement on all of these issues requires a coordinated approach between legal and compliance teams and a concerted effort to implement pragmatic, fact-based prioritisation of legislative/regulatory risk and compliance.
The conference covered many of the issues that make legislative and regulatory compliance so problematic, and gave insight into some practical solutions. Through practical panel debates and in-depth presentations, we heard how firms manage three specific areas of legislative regulatory risk: adequate awareness, impact assessment and proportionate compliance. These three activities are often distributed between legal and compliance teams, and we heard that when these teams work together, they act as an effective line of defence against risk. But we also heard that if the relationship breaks down, either gaps in responsibility happen, leading to unmanaged exposure, or duplication of responsibilities.
We learned through live polling of the audience how technology can be used by in-house teams to help meet the increasing demands on their time, for example the proliferation of data. The majority of attendees rated their current technological maturity as either basic or developing, so there is clearly scope to improve. If, as general counsel, you develop a strategy to bring your risk data and lawyer activity data together, you will be able to
1) improve insight into where priority legal risks might bubble-up to the surface,
2) influence business decision-making at the right point in time to manage those risks, and 3) help demonstrate that you are in control of legal risk throughout your business. The question for GCs is therefore not so much where they are in the way they use technology, but where do they want to be?
Sanjay Bhandari is partner and head of markets, fraud investigation & dispute services, UK & Ireland; Matthew Whalley is director of legal Risk, both EY