Toeing the line

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Investigations and regulations have become a core part of what in-housers have to deal with. In association with Grant Thornton

In brief

The Lawyer and Grant Thornton commissioned a joint research project of general counsel and heads of legal at financial institutions. The study revealed that, across the board, leading lawyers working in business are experiencing more intervention from regulators – and they see this as an ongoing trend.

A recent roundtable event chaired by Paul McMillan, editor The Lawyer’s sister title Money Marketing, discussed the findings, looking at the changing role of the general counsel in an increasingly aggressive regulatory environment.


Q; How has the regulatory environment for financial services changed since the financial crisis?

Paul Garbutt, head of UK regulation, Grant Thornton: Significantly. We’ve not seen much in terms of new regulation coming through, although there has been some, but in the way regulation is applied in the UK, the US and a number of European markets, in the willingness of the FSA to step in and become a more intrusive regulator and in the political will to see big-hitting regulation, things have changed a lot.

Broadly, we are looking at a framework whereby regulation is becoming much more of a board-level item. It’s no longer confined to counsel compliance and the CFO-type agenda – it’s much more central to the way organisations have to operate and develop their strategies.

Neville Howe, general counsel, RSA Group UK: There’s been huge change, some driven by the financial crisis, but not all.

The way consumers are operating has changed massively. When I go on holiday now I check Trip Advisor before I choose the hotel because I can see the feedback of previous customers. Consumers are no longer trusting of brands or big companies, they go out into the market more.

Dominic Bacon, managing director, Squaring the Circle: The crisis has been a catalyst for a focus on financial services and financial regulation. But part of that is because until then there was a view that big banks didn’t have much impact on the way people dealt with their lives. The crisis has shown this was clearly wrong.

Charlotte Taggart
Charlotte Taggart

Charlotte Taggart, general counsel, Lockton Companies: It’s all part of the regulators’ ‘credible deterrence’ strategy. The intrusive nature of regulation is causing boards to sit up and take notice. Our CEOs and finance directors are noticing the increasing amount of fines. The FSA levied £110m in fines last year compared with £3m-£5m in 2004/05.

I see our role as protecting the organisation from these fines, but I also think it’s critical that boards take an interest in regulation. I don’t think compliance used to featured as much on their radar as did revenue, but it’s one of the main items on the agenda now, including things such as financial crime. No board can afford to leave it off the agenda now.

 Q: How has this change in dynamic affected the role of the in-house counsel?

Taggart: My role has increased in scope enormously. I continue to give legal advice, but back in 2009 up to 80 per cent of my role was legal advice – now it is probably 40 per cent legal advice and 60 per cent looking at risk management and regulatory issues.

Risk management is obviously an increasing focus for the FSA, especially for wholesale intermediaries it is something we spend a lot of time considering. The question I’m always asking myself now is ‘what is the risk appetite of the organisation in relation to this transaction?’.

Bacon: At the beginning of the decade we were seeing general counsels taking on more functions – regulatory compliance and, to an extent, risk. But some of the issues dealt with on the compliance side are not necessarily suitable for lawyers. You need to start thinking about having a split between the head of legal and head of compliance or head of regulatory. We are likely to see a push from regulators to have more defined roles like that.

Howe: There’s a change blowing through. It’s not necessarily about how you order the chairs, so to speak, but about having the right people in the right roles.

We’ve put much more focus on risk governance. Fundamentally, what lawyers do is manage risk, so there is a connection. The compliance team shouldn’t just be about checking, it should be about understanding what your regulatory risks are and managing those.

Garbutt: It’s about ‘culture’. The structure – specifically, who reports to who – is secondary. It’s a case of ‘have you got the quality of people who can influence the way the organisation behaves, permeate and make a cultural change?’.

The point regulation is driving ­towards is having risk management at the heart of the decision-making processes in the organisation.

Taggart: The GC role is critical in terms of board presence so you are heavily involved in discussing the strategy of the organisation, you understand the direction and can influence the culture. The GC tends to be the moral compass of the ­organisation at that level.

James Dimech DeBono, partner, Grant Thornton: Having someone who is entirely responsible for looking at risk and reporting to the board is quite an important function. With the benefit of hindsight you could have predicted some of the failures because, from a risk perspective, there were people responsible for certain sub-functions, but there was nobody looking at the whole picture.

Dominic Bacon
Dominic Bacon

Bacon: I’m not sure that I agree – I agree that you need to have an overarching view of the risks throughout the company, but I’m not certain that’s what the GC should be doing. If they are head of risk or COO, or something of

that ilk, yes. But a GC is by nature focused on the legal risk. I’m not sure GCs are ready – or have the skills – to look at the quantitative side.

Q: How have general counsels’ skill-sets changed?

Howe: Previously, risk was very much managed on a qualitative ­basis. Now it is much more quantitative, so you can count the pounds behind the risk.

Bacon: There is a new risk – ethical, as in ‘is this a transaction we as an institution should be taking on board?’ That’s an interesting conversation and perhaps one that lawyers are not used to having because it requires fundamental change in many areas of the business.

Taggart: As the cultural barometer of the organisation you have to have conversations now along the lines of ‘if you have a giant microphone shoved under your nose are you going to be happy to stand by that decision?’ That’s the kind of challenge we didn’t have 10 years ago.

Bacon: Just 10 years ago GCs would be asked if something was legal or illegal. Now we are being asked by CEOs whether this is the right thing to be doing. But are lawyers the right people to be saying that ‘it is legal, but we shouldn’t be doing it’? You’ve got to have the right relationship with your board and your CEO to have the confidence to make that statement. 

Q: Will regulation get tougher and if so, why?

Bacon: There’s no question that financial regulation is going to become more intrusive, more technical and more difficult to manage.

Taggart: Increased attention from the media on fines is going to affect the way we look at our role – it’s what keeps us awake at night.

Neville Howe
Neville Howe

Howe: You can see that behaviour is already starting to change. The regulatory bar has been raised. If, as a company, you are aiming for a higher bar, making sure your customers trust and value you as you should be, then it should be welcomed, so long as the transition is not too burdensome.

Bacon: Frequently, it’s shutting the stable door after the horse has ­bolted. Regulators need to sit back and think about the issues facing this industry or that sector rather than enforcement, which is always going to be more about past behaviour.

Garbutt: There has been a breakdown of trust in the financial services institutions. There’s a broader pattern here of a societal change and a regulatory response to that which will be more intrusive. This will continue.

 Q: How do general counsel deal with the differing viewpoints of international regulators?

Garbutt: The survey shows that people see regulation in the US as the most intrusive and the toughest to deal with. This reflects a pattern that’s been in place for decades. I see a number of our clients struggling with how to square the requirements of different international regulators. If the rules aren’t perfectly aligned in the details it can get complicated trying to navigate your way through it. GCs will find themselves front and centre of that mismatch.

Taggart: From a competition perspective it hasn’t been too difficult because, when you look at China and Australia competition law coming through, it’s similar to the EU. You set your bar where you want it to be and try to get all your jurisdictions to come up to that.

The bigger challenge has been the implementation of the Bribery Act, not so much in terms of processes or controls but more in terms of cultural acceptance. We work in Korea, Ecuador, Thailand, Malaysia and Abu Dhabi, and these are jurisdictions where business is done differently. That has been more of a challenge – to help people understand why, as a subsidiary of a ­major global organisation, it is ­critical to abide by this.

Q: How should general counsel deal with social media?

Howe: Previously, when things bubbled up in the press and media it would have taken days and weeks before issues hit the papers, and as a result you had time to think about your reaction to events.

Now, with the rise of social media, you can see things blowing up within a day and face having hundreds of thousands of tweets flying around. The result of this is that response times from a GC’s perspective need to be much faster. You cannot operate in today’s environment without being engaged in social media, but it’s all about getting the balance of risk right.


Q: Are financial services legal teams fit for purpose, particularly if hit by a big investigation?

Bacon: It’s all about the identification of risk. Whether that is risk in the business today, future risk or risk affecting your sector as a whole, that’s what the GC, the head of compliance and the CEO all need to be thinking about.

The GC may well have primary responsibility for the management, but the business heads are there to identify risk too. So you can make your department and your business fit for purpose.

Q; How do you conduct internal investigations of suspicions of wrong­doing?

Taggart: We’ve seen an increasing and encouraging tendency for people to blow the whistle because the culture is extremely strong in our organisation. It’s really important for the GC not to over-react to a situation and to be a trusted adviser so that people will be happy to come and talk about problems they see.

Bacon: You can have policies coming out of your ears about how to deal with it, but if people don’t buy into those procedures you need to have the right culture, ethics and morals in place.

Please visit to watch highlights of the roundtable discussion