Flexibility is the key to financial services law

Tim Plews, joint London head of finance and capital markets, Clifford Chance

Growth in financial markets regulation is unlikely to stop any time soon. Financial product innovation and the substantial rewards at stake will see to that. For law firms, delivering a cohesive global financial regulatory practice to clients across the broad spectrum of financial services law must be a priority. Clients expect law firms to perform to tight timescales and at a consistently high standard across all regions.

As a result, Clifford Chance has made two appointments to its financial regulatory practice in London in the past two months – Carlos Conceicao of the Financial Services Authority and Simon Gleeson of Allen & Overy. In most countries, financial regulation remains a national concern. With the exception of the EU’s Financial Services Action Plan, which is essentially a legislative programme intended to create a singleEuropean market in financial services, free trade areas and bilateral trading accords have done little to make the conduct of cross-border business any easier to execute.

Ambitions for greater cross-border market access in financial services to be achieved in the Doha round of World Trade Organisation (WTO) negotiations now seem to have been hopelessly misplaced. However, for many of the world’s leading financial institutions, the current thinking is that growth in revenues is most likely to come from outside the country.

And for many, investment in existing franchises or, where permitted, in start-up businesses in Brazil, Russia, India and China and other vibrant economies is looking increasingly attractive. This confers a competitive advantage on those law firms that can speak to legal and regulatory conditions in places many miles from New York or London.

The biggest financial institutions have understandably grown their internal legal and compliance resources. While every client will have a slightly different approach to using outside counsel, the opportunities to service leading institutions with a financial regulatory offering appears to be a fine way to cement a broader institutional and transactional relationship.

Forward-looking efforts are valued in the regulatory sphere. Knowing when to lobby is as important as realising that some arguments will be better received by policy-makers and politicians, depending on where each individual hails from and the nature of their observations.

There are concerns that the latest changes to the rules governing regulatory capital for banks (Basel II) are too complicated and, understandably, have not kept pace with the speed of innovation in structured finance. Working out how to press for change to a regime that has not yet come into force is a challenge to tax the most able of diplomats.

The corpus of financial services law and regulation is forever changing. It is essential that we, as lawyers practising in this area, are willing to learn new things and rethink old assumptions. Staying on top of market developments and the latest regulatory activism is crucial.

Enforcement of laws and rules is, in most major markets, now firmly rooted in due process and a fair hearing. The days of cavalier treatment under an industry self-regulatory structure or a statutory regulator with unrealistic assessments of the strengths and weaknesses of a case are largely over.

Requiring ultimate responsibility for regulatory compliance to be borne on the shoulders of senior management may seem harsh at times, but it is a challenge with which financial institutions, large and small, must come to terms. And it is a model, mainly pioneered in its present form in the UK, that is being copied by regulators elsewhere.