The Law Reviews

The International Capital Markets Review

Edition 6

Published: December 2016Contents


Editor's Q&A

i) What are the hot topics?

Seven years on from the collapse of Lehman Brothers in September 2008 and nearly four years since the first edition of this review appeared, a great deal of ink has been spilt, so to speak, in recording the lessons of the global financial crisis (GFC), much of it reflecting an attempt to focus on what brought the crisis about: risk-taking by bankers, blind spots and lack of understanding on the part of regulators, rating agencies asleep at the wheel and wrong economic incentives from policymakers and management.


ii) Tell us about any key legal developments – recent or pending – and their international impact.

There has been no shortage of lawsuits, enforcement actions, penalty fines and, most recently, criminal prosecutions for financial market misconduct. However, it has been non-lawyers, and not their counsel, who have found themselves in the hot seat. Still, that begs, rather than answers, the questions: what was, or should have been, the role of the lawyer in mitigating the risk of a financial market meltdown? Was sufficient resort to outside counsel made by financial institutions in the run-up to the GFC? Would greater utilisation of independent counsel have made a difference? What public responsibility, if any, do international capital markets lawyers have to ensure not just that underlying transactions are legal as a matter of positive law but that the financial marketplace is benefited, and financial market stability not threatened, by them? Until now, these are questions that seem to travel mostly beneath the radars of the financial market commentators who have been reflecting on the GFC.


iii) What are the biggest opportunities and challenges for practitioners and clients?

It is interesting that in what could be argued to have been their earlier ‘glory years’, financial institutions did rely heavily on outside counsel to keep on the legal straight and narrow. However, there is much evidence to suggest that there was much greater reliance on in-house teams in 2008 following the considerable build-out of these in the preceding decade. Cost-cutting became the ‘buzz word’.

Did that institutional ring fence, however, heighten the risk of seeing everything through too narrow an institutional prism? Gillian Tett, in her excellent new book The Silo Effect, reminds us of the major risk of insular groupthink in an age of increased specialisation.

Seeking outside and independent advice on such matters had been seen as a kind of insurance against that. Of course, that insurance was never thought to be cheap. But was it cheap, in fact, at least when compared with the penalties, fines and other conduct costs many financial institutions have paid since the GFC? And did the financial institutions in any way connect the cutbacks in legal spend on independent counsel with the GFC? Here’s the paradox: the more that lawsuits and enforcement actions have followed in the wake of the GFC, the greater the pressures seem to have been to reduce the budget for independent legal advice in connection with ongoing transactional work.

And those pressures continue.