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Leading the charge in fintech

Advantage A&O: scoring through innovation

David Wakeling

A&O: 2001-present

The Markets Innovation Group, the newest part of A&O’s Advanced delivery suite, is helping the firm maintain its place at the cutting edge of legal and financial technology.

It’s an exciting time to be a lawyer, says London Derivatives partner David Wakeling, and there can be few in a better position to know.

As the head of the Markets Innovation Group (MIG), the newest part of A&O’s innovative Advanced delivery suite, David is leading the firm’s ground-breaking use of technology and resourcing in ways that are changing how lawyers work.

MIG was launched in September 2018 with a mandate to develop legal solutions for clients using new technology and resourcing models, and to develop expertise in financial technology (fintech).

It started life with a group of London partners – David, Guy Antrobus, Paul Cluley, Emma Dwyer and Tom Roberts – and a team of associates. It will also draw on the expertise of derivatives specialists Deborah North and David Lucking in New York, and Ross Stewart in Hong Kong. London Debt Capital Markets partner Phil Smith and his team will also work closely with the new group, as will Banking partner David Campbell and his team.

Two senior associates from the Derivatives and Structured Finance department in London, Francesca Bennetts and Christine Long, were appointed as executive directors in a distinctive shift for the role: here it is intended for senior lawyers wishing to focus on the entrepreneurial and creative possibilities in legal technology, combined with strong client relationships.

MIG has been given the scope to originate ideas, incubate them, form any joint ventures (JVs) that may be required and establish the architecture to get these client-focussed solutions off the ground using the expertise of the rest of the firm.

The new group finds itself in the enviable position of addressing a real need in the market while giving A&O an opportunity to gain further competitive advantage through innovation.

In a sense, MIG formalises an approach that has been used by other parts of the Advanced delivery suite, working in conjunction with technology providers and other professional organisations to create new offerings. MarginMatrix, the JV between A&O and Deloitte, is the best-known example, but other products are at different stages of their development: some have already been purchased by clients and are in the implementation phase.

“It’s very difficult to get these projects away unless people feel it’s what they’re supposed to be doing,” said David. With the traditional business model in the legal sector focused on chargeable time, “it doesn’t allow much scope for a three-year project that may not have a client for two years.

“We’re building a solution for clients, in effect, in a black box.”

The purpose of MIG, he said, is to create form around this concept. “It made sense to make this kind of ‘industrial incubation’ more clearly mandated by the partnership rather than operating ad hoc based on informal relationships.”

Having a coherent group will allow IT-centric solutions to spread across traditional practice groups such as Capital Markets and Banking. “It will mean we can make the development of technological platforms and client solutions more generally part of the fabric of how we operate, like the alternate resource models.”

MIG launched in September 2018 with two new and unique products: BrexitMatrix – which won A&O a ‘Standout’ rating in the new products and services categories at the 2018 FT Innovative Lawyers Awards – and MarginXchange™ (see sidebars). Client feedback suggests A&O has “no real competition” in that space, said David, adding: “We have a history of doing this kind of innovation.”

MarginMatrix is a particular A&O success story. Launched in 2016, it was a major step into using advanced ‘legaltech’ for a whole industry, in this case the derivatives market. Its success prompted questions about how to make this kind of solution more scalable and relevant to the wider firm.

MIG’s strength and appeal to clients will be its ability to handle difficult but relatively short projects. “We’re able to syndicate the costs of developing technology systems across many clients and thus reduce the cost for each client,” said David. “Each project needs the same sort of people: good lawyers who ‘re-equip’ for the latest big event, in the process acquiring skills beyond law such as project management, client outreach and how to build legal technology systems.”

Perhaps the most daunting aspect of MIG is the risk of failure. Most other industries accept that investing in R&D is part of the cost of doing business and comes with no guarantee of success. “We need to get comfortable with R&D,” said David. It’s ‘newish’ for the legal industry, but “A&O is good at this.”

All this adds up to a new, parallel career path. “The world is going to need these things in the next few years. This is the direction our industry is travelling.

“We know that when we scale up our capabilities, in terms of developing actual client solutions which target a business need that law firms have not previously served, the results can be dramatic. The firm can capture strategic advisory roles, our market profile can be enhanced and the returns from the resulting revenue growth can be significant.

“This new group is aiming to drive that agenda forward and help us achieve our ambition of becoming the pre-eminent firm in this space.”

Hedging bets on the Brexit deal

BrexitMatrix™ has addressed the practical side of operational continuity among large financial institutions regardless of the outcome of negotiations between UK and EU politicians.

Basically, said David, A&O created a system to help clients reorganise their business in preparation for their worst-case scenario, the so-called hard Brexit which would cut into London’s ability to function as a global financial centre. Nobody else has done this.

A&O’s approach was to clone parts of a client’s London business elsewhere – “nothing too drastic or permanent” – so it could carry on whatever the deal eventually struck.

“BrexitMatrix has allowed clients to hedge their bets as long as possible,” he said. “If there’s a good deal between the UK and the EU, then it will have been a good insurance policy. If no deal, then this will have allowed them to continue dealing with their customers.

“This isn’t some vague vision of the future – it’s happening now. Our team is doing a brilliant job delivering BrexitMatrix to some of our largest clients.”

Breakthrough in handling data

MarginXchange is the result of a huge collaborative project between A&O, business information provider IHS Markit and SmartDX to create an online platform for the derivatives market that supports institutions as they ‘repaper’ to comply with the phased introduction of Initial Margin (IM) regulations.

It’s a platform that achieves the long-held goal of treating derivative documents as data by using a document format so that people as well as machines can read them.

The scale of the development has been “unprecedented”, said David. “We’ve had more than 70 lawyers working on it for the last 18 months. It’s absolutely enormous.”

What the team has built, he said, is relevant to every financial centre in the world. After its launch in April 2018 as a fully functioning product, it went into ‘sandbox’ trial phase with clients, including many of the larger global institutions. Contracts were expected to be formalised by year-end.

“This is not the traditional hunting ground for lawyers,” said David. “There’s an element of creativity involved. We have to deliver something for clients. We know what the end-game is – something that doesn’t exist – but there’s no precedent for how this does the job for most of them.”

The result, however, holds great promise. David said the JV partners anticipate something in the range of 10,000 new relationships across the industry and around the world as more enterprises – large asset managers, private equity funds, banks: anyone who is big enough to be covered in the uncleared margin rules for derivatives – come into scope.

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