The European Commission’s (EC’s) longstanding aim of creating a true single European market in financial services is coming closer to a reality. Banks, securities firms and investment exchanges are increasingly subject to pan-European competition. The resulting increase in M&A activity in this sector, and the harmonisation of the regulatory framework in which these businesses operate, have important implications for providers of legal services. The advantages for law firms of providing an integrated service covering all the major European centres will become more and more apparent. A single market has proved particularly elusive in the financial sector. The EC felt the need to launch the hugely ambitious Financial Services Action Plan in 1999 to push the process forward. This programme of new legislation was largely aimed at harmonising the regulatory framework under which firms operate. It is only now coming to an end, as firms prepare for the coming into force of the Markets in Financial Instruments Directive in November 2007.
The Commission is also stepping up its efforts to remove barriers to cross-border M&A in this sector, most recently with proposals aimed at clarifying the circumstances in which supervisors may veto changes of control and making their decisions more transparent.
There is no doubt that these developments are accelerating the pace of integration. As the effects of greater competition are felt, further M&A activity can be expected at all levels: consolidation within national markets, cross-border acquisitions within the European Union (EU) and investment into the EU from third country firms attracted by the size of a single European market.
This represents an opportunity and a challenge for law firms. Clients whose plans cover the whole European market expect their advisers to do the same. An increase in transactional and regulatory work will therefore put a premium on law firms able to provide seamless transaction management and advice of consistently high quality across all the major European jurisdictions.
To do this requires a common under-standing of business sector and client priorities, effective co-operation and responsiveness across jurisdictions and a high level of training, development and sharing of knowledge.
It therefore presents a considerable challenge either to a single international firm or to a network of firms cooperating; but — perhaps not surprisingly — I am convinced that a single international firm provides a more promising environment in which to achieve it, in particular through stability of working relationships and high levels of common interest.
The sharing of expertise is particularly relevant for lawyers dealing with the financial services sector. The Financial Services Action Plan legislation is creating a high degree of harmonisation in the regulatory regimes of all EU states, particularly in the wholesale markets. Lawyers in all jurisdictions are working with a core of essentially the same legal provisions. There is a lot of scope for sharing of experience in interpreting these provisions and ensuring consistency of approach. Joint training sessions for lawyers, and client seminars which can field lawyers from a number of jurisdictions, can be particularly effective in this area.
While some countries may have a longer history of financial regulation or more developed financial markets, lawyers from all countries benefit from understanding different countries’ approach to the basic texts, themselves the result of negotiations to which all contributed.
The advent of a single market in financial services presents new opportunities and challenges for law firms. They, like the financial services market itself, can best rise to those challenges by an integrated approach.
Guy Morton is senior partner of Freshfields Bruckhaus Deringer.
