A year on from his move to Allen & Overy (A&O) from Weil, Gotshal & Manges, US bank regulatory head Heath Tarbert talks to Jaishree Kalia about the expanding influence of US regulators and why it’s easier for Magic Circle firms to compete for regulatory work.
Are US regulators setting the tone and pace for financial litigation across the world?
For better or worse, I think so. Enforcement actions have long been a part of the US regulatory environment, particularity in securities and economic sanctions. The big difference in the last few years has been the enormity of the fines and penalty amounts. We are now starting to see regulatory authorities in other countries bring sizable enforcement actions as well.
Many New York law firms have hugely benefited from the avalanche of high-stakes financial litigation, but many are expecting these cases to slow this year. What in your view will take its place?
It’s always difficult to predict the future, but we’ve seen a real uptick in banking and capital markets transactions in the last 12 months. And this is a good thing. I would hope these sorts of matters – for which clients are actually pleased to engage law firms – would keep lawyers in the financial regulatory field busy for the next couple of years.
Roughly how much does your banking regulatory practice contribute to the firm’s overall revenue in the US?
I can’t disclose exact numbers, but we’ve been pretty busy as a team and are actively looking to fill open associate slots. In terms of measuring our contribution, the key thing is that there are dozens of client transactions going on all the time – and not just in the States – that require US regulatory expertise. It’s not unusual for a partner on my team to have worked on more than 75 different matters in a single year. In many cases, our expertise is fundamental to getting the deal done and so I think that’s the ultimate value of a regulatory practice – how critical you are to the rest of the firm’s business getting done.
How has client demand changed over the last 6-12 months?
One thing that has become particularly apparent in the last 12 months has been that clients are keen to cut costs by de-coupling more routine, regulatory compliance work from high-end legal analysis. That has meant that projects that likely would have gone exclusively to law firms a decade or two ago are now split between consulting and other niche service firms on the one hand, and traditional law firms on the other. Given the deluge of regulatory compliance work and complexity of the legal issues involved, the changes make sense.
Last year saw regulatory work being pushed to the forefront of many leading New York practices. How will A&O compete with this, given it is a Magic Circle firm and is yet to break into the New York market?
There’s no question New York is a challenging and entrenched market for outsiders – not only for the global elite as the Magic Circle firms are better known as, but for other US firms as well. It’s particularly tough in the transactional space. But regulatory is different, since federal regulations ultimately come from Washington. Post-financial crisis we’ve seen a trend in clients wanting their regulatory lawyers to have ‘inside-the-beltway’ Washington experience – meaning they don’t just know the black-letter laws but also understand how a particular regulator is likely to think about a tough issue or what big trend is around the corner. Although New York firms have been beefing up their Washington regulatory teams as well, I think it’s a lot easier for firms like A&O to compete in this space.
What is keeping your practice busy?
A few different things. We’re still busy with Dodd-Frank, including resolution planning issues and Volcker Rule compliance for dozens of clients around the world. In addition, we’re starting to see an increase in Basel III work. Apart from these post-financial crisis work-streams, there’s the hodgepodge of matters that have come to banking regulatory lawyers for decades – setting up new branches and representative offices, clearing and custody agreements, assessing legal risk for new financial products, and enforcement and investigations work.
What do you have planned for the group this year?
We’ve got a number of interesting projects to tackle in the next year – a number of which involve our regulatory colleagues in the UK, Continental Europe, and Asia. One example is our efforts to set up and get regulatory approvals for a new international derivatives suite of products and services. On the policy side, we are advising on advocacy efforts in shaping further regulatory developments due to emerge in the next 12 months such as the total-loss absorbing capital [TLAC] proposal by the Financial Stability Board and the Basel Committee’s longer-term liquidity standards.