Can niche players retain their go-to status as City firms start to circle?
As far as political statements of intent go, Chancellor George Osborne’s maiden Mansion House speech last month was a bold, if not entirely unexpected, move.
In effectively neutering the regulatory powers of the FSA, the Chancellor has taken a sword to a body that came to represent the economic philosophy of the Brown/Blair years, and in turn became a symbol of the ultimate failure of New Labour’s financial regulation policy.
A new body – the Economic Crime Agency (ECA) – will be set up to bring together the enforcement capabilities of the FSA, the OFT and the SFO. What is not quite so clear is what powers the new organisation will have and what it means for regulatory and white-collar crime practices.
One thing that many lawyers in the City agree on is that changes to the regulatory environment have been needed for some time.
“It’s a good move,” says one leading City regulatory partner. “The OFT didn’t have the experience to run major investigations.”
Earlier this year the OFT’s ability to pursue criminal convictions was put under the microscope when it withdrew from proceedings against four British Airways (BA) executives accused of price-fixing amid accusations of incompetence.
“They didn’t plan the game very well at all in the BA case,” explains the regulatory partner. “They haven’t thought through how to go about a criminal investigation.”
One of the key elements of Osborne’s reform is the splitting up of the OFT’s investigative and prosecuting powers, something that is seen as key in ensuring
that only worthwhile cases are ultimately brought to court.
Freshfields Bruckhaus Deringer competition litigation chief Jon Lawrence, who is also a member of the firm’s recently established global investigations group, believes that improvements to the prosecuting body will be welcomed by his clients.
“Bringing the OFT under the umbrella of a specialist prosecuting authority is a move in the right direction,” he adds. “As a defendant you need a prosecutor that plays by and understands the rules.
“It’s about making sure that prosecutions aren’t brought and cases not pursued that have no merit. It’s better for everyone to have these cases run properly and for prosecutions to be assessed and brought on a consistent basis.”
The zest for regulatory bodies bringing their own prosecutions has also been taken up in recent times by the FSA. Last month it lost its first criminal prosecution for insider trading when two former City lawyers, Andrew Rimmington and Michael McFall, were acquitted.
But with budgets tight and new organisations having to prove their worth to their Whitehall purse-string holders, there is every chance that a wave of prosecutions will follow, potentially leading to a nice windfall for some niche practices.
Firms such as Corker Binning, Kingsley Napley and Russell Jones & Walker (RJW) are among the white-collar crime specialists that could benefit from an uptick in workflow. But the waters could be muddied.
“It’s both an opportunity and a threat to boutique white-collar crime and criminal firms,” says Baker & McKenzie financial services chief Arun Srivastava. “There may be more work in this area, but they’ll face more competition and get fewer referrals.”
The threat is that, with a larger pie potentially on the table, the big boys might start wanting their own slices.
The launch of Freshfields’ global investigations practice – although dismissed by some competitors as a neat way of marketing a function already on offer at a number of competitors – is an example of how firms are thinking of ways to muscle in on the action.
Lawrence agrees that the broader remit that has been mooted for the ECA will allow his practice to exploit new opportunities, but he thinks the boutiques will still be the go-to firms for prosecutions, even if they are now brought against companies rather than individuals.
“Some clients will look to the established white-collar crime firms to help defend corporate prosecutions,” he explains. “It might not mean more work [for them], but it could mean an improved quality of work.”
RJW regulation partner Jeremy Summers thinks that firms such as his will still offer the specialist expertise required.
“Firms that haven’t previously practised in the area are seeking to add to their offering; some have committed significant resources and others have rebadged existing personnel.
“From a client’s perspective, a criminal investigation is highly stressful and they may take the view that, ’if I need heart surgery, I should see a cardiac specialist and not my GP’.”
Peters & Peters fraud and regulation chief Michael O’Kane is another who is not yet concerned about the threat from larger players.
“If the market’s changing, it’s changing very gradually,” he stresses. “US firms have big white-collar crime practices. We haven’t yet seen that happen in the UK, but it may be the way the market’s moving.”
What is certain is that the scale of investigations, and subsequent prosecutions, will be ramped up. Where the FSA was targeting individuals, the ECA could well have the power to go after corporates. And that is where the bigger regulatory practices are likely to start sniffing around.
“The new body should have more weight, otherwise what’s the point?” asks a business crime partner at one City firm. “The larger firms have built up units to make sure they can give a full offering. It’s got to be more attractive to a corporate client to come to a bigger firm for this work.”
Osborne’s regulatory revolution might not have been intended to line the pockets of City partners, but there are one or two who could well be rubbing their hands together.