Legal Business

Magic Circle meets big four – A&O teams up with Deloitte for pioneering JV targeted at banking giants

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Innovation Allen & OveryDeloitte
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In the first marquee joint venture between a Big Four accountant and a Magic Circle law firm, Allen & Overy (A&O) has teamed up with Deloitte to create a tech-driven service to help banks handle post-Lehman regulation.

The new service – dubbed MarginMatrix – will deploy automation to help banks address incoming global regulation of the $500trn over-the-counter (OTC) derivatives market. The rules under the European Market Infrastructure Regulation (EMIR) framework will require counterparties for derivative contracts not processed through an authorised clearing system to provide additional margins for their net exposures.

The reforms – which A&O estimates will require a large banking group to provide around $10bn initially in additional margin alongside thousands of new contracts – are a major compliance challenge for the securities industry and potentially a lucrative product line for advisers.

MarginMatrix codifies legal regimes in multiple jurisdictions and automates the drafting of documents based on computer-assisted analysis. A&O claims the system can create a document that would conventionally take three lawyer hours in just three minutes. On its estimate, the 10,000 OTC contracts a major bank would normally hold can be processed in 12 weeks with one person deploying the system, against 15 years of lawyer hours.

A&O will run the programme and provide legal input, while Deloitte will provide project management to large teams of negotiators in multiple jurisdictions.

A&O derivatives partner David Wakeling came up with the concept. He said the programme ‘will allow [major banks] to carry on trading derivatives without worrying that they may be, for example, complying with the US rules, but they’re not compliant with the Singapore rules. What we’re doing is gold plating all the regimes and making sure their trading relationships works all over in the world.’

After finishing a prototype of the programme in June last year, A&O approached Deloitte with a proposal in November. Wakeling (pictured) added: ‘We thought that it was all very well that our system would spit out a beautifully crafted legally compliant document, but it would probably be negotiated and there’s a lot of work around execution. We started talking to Deloitte and said: “You’re very good at large scale, disciplined projects.” The scale is thousands and thousands of contracts in multiple jurisdictions, so it’s the managed services arm coming in from Deloitte.’

A pioneering tie-up of a leading accountancy group and an elite global law firm on a high stakes project will be seen as a significant development for the legal industry and further bolster A&O’s progressive credentials after previous initiatives such as its flexi-lawyer arm Peerpoint and its suite of online services, aosphere.

A&O senior partner Wim Dejonghe commented: ‘MarginMatrix is an example of the way in which we are evolving our offering in the face of changing client needs. We foster a culture of entrepreneurialism and risk-taking, which enables our partners to deliver market-leading initiatives like this one.’

The new OTC regulation was expected to come into force on 1 September but the European Commission last week said the implementation deadline would move back, with a likely date in the middle of 2017, though US implementation will happen in September.

Wakeling said the reaction to the project has been positive. Six global banks have already signed up to the service including one ‘Bulge Bracket’ house. ‘What became very clear very quickly is that this is exactly what they needed. This is a very worrying thing to have global regulations kicking in this year in lots of regimes which are very complicated and a system and a process was exactly what they needed,’ Wakeling told Legal Business. ‘We very quickly picked up quite a lot of clients. It’s become a very significant business for us.’

Around 20 A&O partners are dedicating ‘significant’ time to implementation. A&O’s London derivatives partners Emma Dwyer, Guy Antrobus and Paul Cluley worked with Wakeling through the programme’s creation. Hong Kong derivatives partner Ross Stewart and regulatory/capital markets partner Yvonne Siew, Singapore capital markets partner Matthew Hebburn, New York derivatives partners Deborah North and David Lucking, and Washington DC-based partner Bill Satchell have also been involved.

Deloitte’s team working on the project includes its New York, Hong Kong and London offices. Its team is led by partners Hugo Morris and Katelyn Brown.

Morris commented: ‘MarginMatrix’s ability to codify the law across multiple jurisdictions, auto-draft contracts and provide a controlled workflow environment for contract negotiations will lead to significant cost savings and help maximise institutions’ ability to achieve regulatory compliance.’

madeleine.farman@legalease.co.uk

Legal Business

Robot law: Deloitte estimates automation to cut legal sector jobs by 39% over the next two decades

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Innovation Deloitte
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A new report released by Deloitte is warning law firms to prepare for changes as the rise of automation is likely to cut legal sector jobs by 39% over the next two decades.

The report titled ‘Developing legal talent: Stepping into the future law firm’, predicts that more than 100,000 roles in the legal sector will be at risk over the next 20 years as advancements in technology and machines will transform the profession.

According to the report ‘firms must have a clear strategy for dealing with these changes now if they want to remain competitive and ensure they attract the best talent to support their business.’

The report also said the legal profession will be radically different in the next decade, and have ‘fewer traditional lawyers’ and ‘a new mix of skills among the elite lawyers’. In addition, there will be greater flexibility and mobility within the industry, a reformed workforce structure and alternative progression routes, and a greater willingness to source people from other industries with non-traditional skills and training.

Many firms are already amending their models in preparation for the changes to come. In August last year, Dentons’ NextLaw Labs – which was launched to develop new technologies for the legal profession – invested in an IBM Watson app that has the ability to process natural language, so can answer questions, sift through legal documents, research and return an evidence-based answer.

Other firms are streamlining their IT functions; at the end of 2015, Freshfields Bruckhaus Deringer closed its global IT and helpdesk function in Germany in favour of its new Manchester back-office centre.

RPC director of knowledge management and capability Andrew Woolfson said firms should embrace the advancements. He said: ‘It’s about augmenting lawyerly skills. Software providers and AI gives firms the opportunity to use legal tools that do things and run processes in a much simpler way.’

Woolfson added: ‘The title of legal secretary might change, it may be more of a metric or data analytic role, but it will just be a continuation of where we are today.’

Slaughter and May senior partner Chris Saul commented: ‘Technology is of course playing an increasing role in the provision of legal services. However, clients will surely continue to look for human intermediation of the technology and for bespoke advice from talented lawyers on more complicated matters – making use of evolving technology where appropriate.’

jaishree.kalia@legalease.co.uk

Subscribers can read more in: ‘Deep Blue sky thinking: The cutting edge of legal AI’

 

 

Legal Business

Income up for the top 100 law firms but top 10 see slide as Deloitte records differing fortunes in the first quarter

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Financial results 2014/15 Deloitte
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Accountancy giant Deloitte has recorded reduced fee income for the top 10 UK law firms in the first quarter of 2014/15, with a 2.7% fall as a result of a 2.1% decrease in fee earner headcount alongside a decline in sterling rates as a consequence of the strong pound.

Deloitte’s quarterly legal sector survey results showed that the top 100 UK law firms overall achieved a fee income increase of 6.1% compared with the same quarter last year, a hike that was largely driven by merger activity in the last twelve months.

The quarter saw differing performance levels across the market, with those firms ranging in the 11-25 category faring better than the top ten, and achieving average growth in fee income of 6.2% which was due to increases in chargeable hours per fee earner of 3.5% alongside some improvements in rates.

Jeremy Black, a partner in Deloitte’s professional practices team, said: ‘The market for firms in the 26-100 size category continues to be tough with growth coming from mergers and lateral hires rather than increases in use or rates. While exchange rate movements have hit the global firms this quarter, we would expect the performance of the top 25 firms to improve as the economy picks up. This will continue to widen the gap in underlying performance between the larger and smaller firms’.

sarah.downey@legalease.co.uk

For more insight on top 100 UK firm performance, see the LB100: 2014

Legal Business

Deloitte plots legal market assault with appointment of global managing director

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Innovation Deloitte
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Deloitte has become the last of the Big Four accountancy firms to announce plans to re-enter the legal market with the appointment of Rotterdam-based Piet Hein Meeter as global managing director of Deloitte Legal.

The move will see Meeter, formerly chief executive of Deloitte in the Netherlands, build an international legal practice.

‘Deloite Legal will build on the international trend towards integration of process, technology, and deep legal capability,’ Meeter says on his LinkedIn profile.

Having officially started with Deloitte Legal in early June, Meeter plans to develop technology-enabled global solutions by integrating tax and legal with technology to ‘deliver bundled solutions to clients with complex critical challenges.’

Meeter, who joined Deloitte as part of the firm’s takeover of Arthur Andersen, stepped down as chief executive, according to Reuters, after ‘breaking internal rules on owning stakes in companies whose books are audited by the accountancy firm.’

Meeter did not take any decisions about the stakes he held nor was he involved in auditing companies in which he held stakes, Reuters added in its report in March 2012.

He was re-appointed as global managing director of tax & legal and corporate development & strategic growth in August 2012.

Meeter’s appointment is the latest effort by the Big Four to take on the legal market and follows an announcement last week that EY has made its third senior private practice hire in three months, as Freshfields Bruckhaus Deringer partner Richard Norbruis joins to lead its global transaction law practice. Norbruis follows Berwin Leighton Paisner’s former head of finance Matthew Kellett, who will spearhead EY’s financial services legal work from September onwards. In March EY recruited Addleshaw Goddard’s corporate managing partner Philip Goodstone to boost its UK legal capability.

Neither Deloitte or Meeter were available for comment at the time of writing.

Sarah.downey@legalease.co.uk

Legal Business

Mergers push the top 100 firms back into double digit growth

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Financial results 2013 Deloitte
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A wave of consolidation in the UK legal industry has sparked double digit growth among the top 100 law firms for the first time in five years.

The latest Deloitte quarterly legal sector survey today (13 September) revealed a 10.5% increase in fee income generated in Q1 (ending 31 July) compared to the same period last year.

The growth was boosted by mergers within the sector, which accounted for approximately half of the fee income increase, with the balance due to an increase in general market activity.

The highest growth in transactional activity was in the second quartile 26-50 range, which saw growth of 14.6%. This was followed closely by the 51-100 category, which saw a 13.4% increase in activity.

Billable hours per fee earner remained broadly flat on the previous year, with just a 0.3% rise for the 26-50 category and 1.2% for firms in the 51-100 range. However, in an indication that pricing pressures have eased since last year, fees per fee earner saw a 3.5% increase among 26-50 bracket firms and 2.3% in the 51-100 category.

‘This has been a very positive quarter for law firms with the sector achieving underlying growth averaging around 5%. Firms’ property and corporate departments have generally had strong quarters with the more positive macroeconomic environment feeding through to higher levels of activity,’ said Jeremy Black, a partner in Deloitte’s professional services practice.

‘Merger activity continues apace, particularly in the volume space and outside of London where markets remain tough and law firms continue to face a number of challenges. Consolidation outside the top 25 firms has led to significant growth in average fee income and fee earner headcount,’ he continued.

Law firms are correspondingly more confident about the outlook for the coming financial year, forecasting an average fee income increase of 5.1% for 2013-14, with an increase of 4.2% for the next quarter, the report finds.

This summer, Legal Business 100 analysis found that while the year-on-year performance of the second quartile of firms may be collectively stronger than some of the elite firms in many respects, individually some of the 26-50 firms have had tough years as mediocre financial performance and failed merger talks have taken their toll. For some, simply not boosting revenues by virtue of a merger has seen them eclipsed by rapidly expanding rivals, with Holman Fenwick Willan nudged out of the top 25 altogether, despite enjoying an impressive 14% leap in turnover this year to £141m.

 

david.stevenson@legalease.co.uk