Victoria Young reports on the diverse mix of law firms looking to take advantage as finance meets technology
UK Economic Secretary Harriett Baldwin isn’t holding back on the government’s ambitions for the fintech industry in the UK.
‘We are already a major player in financial technology; our ambition is now to be the major player – the leading fintech centre in the world,’ she recently said, ahead of announcing reviews of so-called ‘robo-advisers’ – online wealth management services.
Robo-advisers are just the latest iteration of blockchain, bitcoin and other products and services in a burgeoning sector where financial services meets technology. An industry that Baldwin says ‘benefits everyone’, the government has pledged support for fintech in any way it can, which has so far included launching research, regulatory reviews and providing a feedback system direct to the regulator, dubbed the ‘Innovation Hub’.
Political rhetoric aside, the numbers are striking. Global investment in the sector tripled between 2013 and 2014 to $12.21bn, according to Accenture Research. In the UK, EY’s research estimates the market to be worth about £20bn in annual revenue, most of which comes from larger tech firms supporting the financial services sector, while about 20% consists of start-ups challenging the financial services sector with new technologies.
According to EY, payment services generate revenues of £10bn per year, while software makes £4.2bn, data analytics £3.8bn and platforms, such as crowdfunding sites, make up the rest. In the UK, deal volumes have been growing dramatically each year since 2008, and in the City fintech firms have attracted more than 80% of all venture capital funding in London, with firms such as Funding Circle, Azimo, WorldRemit and others raising more than £300m in six months to July 2015.
The statistics on fintech, according to Cooley partner Chris Coulter, are ‘pretty impressive’.
‘They paint a picture of a market which is bound for growth. Surely corporate commercial law firms would wish to support that kind of business,’ he says.
Cooley is one of many firms making a concerted push into the fintech area in London, leveraging off its core strengths from its Silicon Valley roots. In London the firm has just unveiled ‘Cooley GO’, a web-based resources centre, which the firm said would ‘satisfy the innovative appetite’ of London’s start-up scene.
But Coulter says the firm’s offering is more than this: ‘What we are setting out to do in the UK is to provide not just the basic building blocks, but also the more complex support that a fintech business needs as it grows. Support such as regulatory advice – you can’t very easily deliver regulatory advice on [a] one-size-fits-all basis.’
While fintech companies, whether they are start-ups or banks or telcos looking for new products, require a range of advice, regulation is at the fore of a host of legal requirements, including structured financing, licensing and intellectual property.
‘The technology is moving faster than the regulators,’ says Karen Kerrigan, legal and finance director at crowdfunding site Seedrs, ‘and the problem is advisers just aren’t keeping up with regulators.’
For this reason Seedrs does a lot of its regulatory work in-house, and Kerrigan said its experience with external advisers has been ‘mixed’. Her preference is to instruct smaller, more agile firms as some of the larger firms can have an overinflated opinion of the service they provide.
‘I recently had a call from someone we don’t instruct, a Magic Circle firm, asking what they could do to get into fintech,’ says Kerrigan. ‘To be perfectly honest that person was extremely arrogant, talking about the firm’s experience in corporate and finance and asking “How can we help you?” That’s not how they should come across – they should work out what our needs are first.’
She adds that as the industry grows start-ups that had once embraced small firms may look to bigger law firms for advice on shareholder and regulatory reporting.
Allen & Overy is one Magic Circle firm taking fintech seriously, having advised on London’s biggest IPO this year for client Worldpay in October. The firm also boasts VimpelCom, Microsoft and The Royal Bank of Scotland among its clients operating in the fintech area.
Partner Simon Toms says the fintech play is long-haul and he feels the firm is doing well because its usual competitors are not active in this area.
‘Advising early-stage companies is, historically, something we may have done less often, but the companies grow so fast and the valuations involved are often so large that actually it makes sense to involve us early when we have the regulatory experience to do it. People don’t want to throw money away without getting it right.’
From the client perspective, there is plenty of capacity for firms to cash in on the action. Funding Circle UK general counsel Martin Cook says: ‘In some cases it is quite complex and it is quite niche. Maybe firms don’t see enough revenue yet to make it worthwhile to invest in.’
victoria.young@legalease.co.uk