Banking 2017: Q&A
Wolf Stumpf, Noerr
In an exclusive interview with Who’s Who Legal, Wolf Stumpf at Noerr discusses the impact of Brexit on the European banking sector, the ever-growing prominence of regulation and compliance, innovation within the industry, and the increasing competition within the legal market.
Recently we have seen the established seats for banking and finance challenged by weak economic growth and political upheaval. Will the traditional hubs remain dominant, or is the market opening up for new challengers?
The impact Brexit will have on the European banking sector and its physical focal points is, at the moment, naturally not foreseeable. The impact will likely depend on the UK’s relationship with the European internal market, particularly whether it will still have access to it. There are various indications that there will be a strengthening of the banking location Frankfurt am Main in Germany. There are already “informal” requests about legal aspects of relocating to continental Europe. Furthermore Brexit could also lead to the strengthening of Malta and Luxembourg (the UK financial industry could use both countries as a bridgehead to the EC). On a global level I believe that a further globalisation of financial markets (eg, Chinese banks) will take place.
Regulation and compliance issues have become increasingly prominent in banking. How have law firms risen to the challenge of providing the necessary information for their clients?
The regulatory density is continuously increasing at both a national and international level and requires constant “monitoring” of its progress. Due to the increasingly complicated requirements, which cover banks and financial service providers of any size, it is necessary to plan proactively and at an early stage. To ensure this, constant observation of the legislative process with an eye toward the business model of the client is needed. For this purpose, in addition to the engagement of specially trained workers (know-how team), legal tech and open dialogues with providers of regulatory technology should take place. Based on this, clients can then be timely and proactively informed about new changes including potential effects to their business model.
Where are you seeing the most innovative banking practices and what do they mean for the market as a whole?
I see the most innovating practices in the fintech sector. In particular, the growing use of social scoring in the [receivable accounts review] and the use of innovative financing models in e-commerce show that banks and financial service providers increasingly see private individuals, ie, consumers, as a profitable target group. The same applies in the sector of supply chain finance products where fintech companies are also entering the market. The technological progress allows for improvements in efficiency for risk-based decisions coupled with a reduction in response times. Nevertheless, many fintech companies are lacking bank-specific experience and necessary financial resources, with the result that the bankruptcy of many fintech companies can still be expected. The market will change to an extent that, in my opinion, the number of fintech companies which belong to banks will rise and therefore synergetic effects will increase.
It has been suggested that banks no longer use their one “most favoured” law firm, but rather look for choice in the market. Would you agree with this assessment and if so, is the banking legal market now more competitive as a result?
In my view, the market has become more competitive. Clients are asking more often for an agreement about fee caps or insist on flat fees. Because of the low-interest environment, factoring providers in particular are willing to take risks and are also willing to do complicated transactions. However, the corresponding efforts in structuring are not always appreciated. Whether adhering to established business relationships is either better or worse than a call for bids from many law firms, which is then based on competition-related criteria, must be decided in light of the circumstances of each individual case. Both methods have advantages and disadvantages. Hiring a law firm that has worked for a client over a period of time does not necessarily lead to a higher invoice. In many cases, the advantages of established relationships can lead to lower costs (eg, knowledge of the internal decision-making process).