A new game in town
The financial services sector has been rocked by scandal and regulatory uncertainty, but lawyers’ stock may be on the rise. Stefanie Garber reports
![Financial services](/images/in-practice-july.jpg)
The past five years have been a roller-coaster ride for financial services. While the economy has gradually recovered, some of the biggest names in banking were implicated in financial planning scandals.
The collapse of several high-profile investment schemes, such as Timbercorp, left investors destitute and the public baying for blood. Regulators scrambled to respond, with amendments following new legislation in rapid succession.
While the sector is reeling, however, lawyers see an opportunity. Amid intense scrutiny from authorities and the media, clients are increasingly seeing a good lawyer as one of their most important investments.
Regulation roulette
Financial services law has been in a state of flux in recent years, according to Claire Wivell Plater, managing director of boutique The Fold.
One high-profile example is the Future of Financial Advice legislation. First introduced by the Gillard government in July 2013, it was heavily amended when the Liberals came to power later that year.
These amendments were then reversed last November by a Senate disallowance motion, championed by disgruntled Senator Jacqui Lambie in a swipe at her former party, the Palmer United Party.
“What the FoFA disallowance has done is leave clients in a complete state of confusion, because they don’t know what’s in and what’s out,” Ms Wivell Plater says.
However, most of the changes rarely make headlines, she suggests. ASIC guidelines, ATO rulings and regulatory updates can all have major impacts on how service and product providers do business, but often slip into law without fanfare.
While this uncertain environment creates confusion and “regulatory fatigue” for clients, lawyers are seeing an uptick in business, Ms Wivell Plater believes.
“There’s no doubt that it’s resulted in more work.” she says. “It doesn’t matter what change happens – whether it adds things or takes them away – it always generates the need for legal input.”
Holley Nethercote founding partner Grant Holley agrees, suggesting any type of uncertainty will prompt a client to see their lawyer.
“Even when the government says it’s going to simplify something, it creates work because the government doesn’t know the meaning of the word ‘simplify’,” Mr Holley says.
Sonia Apikian, banking and finance partner at Gadens, adds that frantic media coverage of ASIC enforcement actions has made clients guard their reputation more closely.
“Reputational risk is always kept in mind in their dealings, whether that’s with customers, regulators, stakeholders or other legal service providers,” Ms Apikian said. “Every decision we make, we keep that in the forefront of our minds.”
Regulators are also rushing to keep up with changes heralded by financial services technology, known colloquially as fintech. Mr Holley predicts these services – including peer-to-peer lending, robo-advice and bitcoin – are poised for take-off in Australia.
“Over the past 20 or 30 years, fintech has brought about huge change in the way that [regulatory] process take place. It seems to have hit a threshold where things are really starting to boom.”
In many cases, however, lawyers must work within the confines of outdated legislation written well before most of these technologies were conceived, Mr Holley warns.
“You need to look at the way what the company wants to do intersects with the Australian regulatory regime,” Mr Holley said. “That means trying to convince ASIC how they should be treating these businesses and how they fit into the existing regulatory framework.”
New frontiers
The sheer volume of red tape in the financial services sector has the potential to overwhelm lawyers, Ms Apikian believes.
“There’s a lot to keep abreast of – to be at the top of your game, you need to make sure you’re constantly on top of all that.”
While larger firms have additional resources to dedicate to research, smaller firms may struggle to stay current, she suggests. Ms Wivell Plater says her firm always stays up-to-date with new developments, but she acknowledges it can be a challenge.
Yet this regulatory burden is also an opportunity for lawyers to partner with their clients and assume a larger role in their client’s business, according to Ms Apikian.
“You want to be business enablers, not just risk managers,” she says. “The value that you bring to the client nowadays is not just legal services – at the end of the day, everyone can draw a writ.
“It’s about understanding the industry and being proactive, pursuing opportunities for the clients in relation to their own strategies and providing commercial insights and working with them.”
She suggests compliance is a continuous process and urges lawyers not to think of it as a trap laid by regulators to raise revenue.
“It’s about working with [clients] and making sure they understand what the regulation is about and making sure it’s implemented.”
Lawyers also have a growing role in ASIC enforcement, Mr Holley suggests. He believes resourcing shortages are forcing ASIC to rely more heavily on enforceable undertakings (EU), shifting responsibilities to gatekeepers.
With an EU, companies commit to a raft of reforms, under the guidance of a consultant and often subject to review by an independent auditor. Both these roles are frequently being filled by law firms, Mr Holley suggests.
“They’re shifting or allocating some of the things ASIC may have done previously and these duties are being outsourced to law firms like ours
“It’s an opportunity because it creates work, but it’s also a challenge because it creates risk. It’s not a traditional legal practice role, because it’s as much about being a business consultant or performing an auditor-type function.”
Lawyers may also be called upon by the government to bring existing law up to speed with fintech innovations, he believes.
“There is an enormous amount of work to be done there,” Mr Holley says. “There are opportunities there for lawyers working in policy, working as parliamentary counsel, drafting legislation, working within industry and having input into consultation papers.”
Uncertain future
Ms Apikian believes regulatory oversight is only going to intensify over the coming year, particularly around the provision of products.
“I think [the regulators] are going to intervene even more promptly if they see or anticipate more problems,” she says.
“There has been a lot of talk recently about systemic breaches. I’m not saying they will going out looking for those but it shows you they are definitely examining all those areas.”
Given this continuing pressure, competition is likely to remain heated among law firms – particularly at the big end of town, Ms Apikian says.
However, Ms Wivell Plater believes boutiques have a valuable role to play, particularly in niche specialities like product distribution: “With law firms that specialise in the financial services sector, the concentration of lawyering is probably more around the product providers than it is around the distributors of products.
“Some of the challenges they have is if they are not intimately working within the distribution chain all the time, they are not intimately familiar with the way it operates.”
Ms Wivell Plater encourages firms of all sizes to help their clients respond deftly to the industry’s shifting sands.
“The big opportunity is to serve the market better by helping it to be more nimble. I think law firms who truly understand that and are able to help their clients get that agility are the ones that are going to prosper.”