How financial services firms are looking to their lawyers to be agents of change

We have talked to 10 leading financial services companies about the role that the legal function plays in their business and the strong message is that the legal function is expected to lead and shape strategic direction and implementation of the strategy.

The companies, based in the UK and operating in banking, insurance and asset management are engaging their legal teams earlier in major projects, which allows them to influence both strategy and operational delivery.

It is also clear that companies are employing ever greater scrutiny of the performance of legal and its costs.

Why now?

What is causing this shift in approach? Digitisation is a major factor. As financial services products become more personalised, in-house legal teams have had to improve their digital literacy to be able to provide compliance advice and manage the work of specialist external legal advisers. At the same time, in spite of demands arising around Covid-19 and Brexit, some overall slowdown in the pace of regulatory change has provided space for teams to work on broadening the knowledge and digital skills of in-house lawyers.

This means that legal teams are now engaged earlier in the development of products, helping to generate ideas and having input on how products are designed. In the past, their advice was later in the process, advising on the risks of decided strategies.

Legal leaders are gaining higher-profile roles, sitting on executive and risk committees. They are expected to promote themselves and raise their profile within the business. One impact of this is that in-house teams support the business with managing the operational risk of the delivery of products, rather than merely the legal risk, particularly as supplier relationships grow through collaboration with fintech start-ups in the wider ecosystem.

Purpose, ESG and strategy

Technology and business transformation

Another element reshaping the role of the in-house lawyer in financial services is technology and the business transformation it is enabling.

Companies have described in-house lawyers using technology to streamline processes and improve engagement with partners. To this end, technology skills are becoming core capabilities for in-house teams.

Lawyers have also had to respond to other business-wide change projects, from refreshed strategies to simplifications and transformation projects run through external consultancies.

Costs

Pressure to reduce costs is growing, and this is not likely to change any time soon. For legal teams this has an impact on recruitment, with some choosing to recruit fewer, more specialist and senior lawyers as a way of having a bigger impact on the business.

Cost pressures have also spurred detailed reviews of what the legal team delivers, and mapping exercises have also helped identify needs and expectations from different parts of the business.

This enables the team to clarify what legal should provide to the business and how. The outcome has been a refocusing and prioritisation of efforts, with some non-core aspects now delivered by self-service tools or not undertaken by the team at all. Some high volume work, such as in procurement, has been outsourced to other areas of the business or to external service providers.

The operationalisation of the legal function has brought with it an increased expectation from management of higher accountability for their costs. This has led to an increased demand for clearer explanations of the cost of providing legal services to the business. In turn, there has been increased demand for spend management tools. In one case there was a further investigation of the detailed metrics concerning the efficiency of the legal function.

Legal technology supporting efficiency

With costs under scrutiny, legal teams have been exploring what role there is for legal technology to support improved efficiency in the way they operate. Teams are now formally developing a more reasoned strategy for its use.

At one end of the spectrum, some teams have decided that technology can offer little to support them if their role is mainly advisory to the business, but others have conducted gap analyses or ‘pain point’ exercises to see where spend on tech would most add value. Some institutions have reviewed the range of technology at their disposal internally or under existing supplier contracts to determine how to streamline, rationalise and get full value from existing investments.

Direction of travel

The coronavirus crisis has accelerated the kind of change that legal leaders have for some time been arguing for.

It has strengthened the collaborative nature of their relationships with other functions as those teams have leaned on legal to guide them on emerging issues and regulatory requirements arising from the crisis.

The value of a purpose-led approach to decision-making has also been emphasised throughout the pandemic. Purpose has helped legal teams refocus and align better with the business, while the crisis provided overnight appreciation of the need to adopt core technologies and the ability for the business to effect and adapt to change.