Société Générale’s Hainsworth: Why the relationship between legal and compliance “doesn’t need fixing”

Ahead of The Lawyer’s In-house Financial Services conference on 5 July, speaker Antony Hainsworth, head of financial services regulation at Société Générale, talks about how competition,tech and the relationship between in-house lawyers and compliance affecting the financial services sector.

What are the top challenges the financial services sector will face in the next couple of years?

I think there are two main challenges. The first is for the sector to look beyond the recent cycle of reform and focus on delivering products and services that meet the needs of clients.

The second is to ensure that the arrival of a wide variety of new entrants, both on in the retail and the wholesale space, enhance innovation and competition in the sector without leading to excessive uncertainty or instability. It’s almost inevitable that when there are new entrants in a sector there will be a period of bedding down in which the strongest survive.

I imagine it’s highly unlikely, for example, that there will still be over 20 swap execution facilities in operation in five years time, or that all the new “challenger” banks in the retail sector will be successful. These are no doubt issues that the FCA is monitoring, particularly bearing in mind its new competition responsibilities.

You will be speaking at The Lawyer’s Financial Services conference on the relationship between legal and compliance. How do you think this relationship will change in the future?

I think – or at least hope – that we’ll continue to see lawyers and compliance officers working together constructively, but that we’ll continue to see different businesses dividing responsibility between their legal and compliance teams in different ways.

There are various ways to carve up the pie and none is intrinsically better than any other. Many compliance officers are trained lawyers; similarly, many lawyers have years of experience advising on compliance-related matters.

Reporting lines between the legal and compliance functions almost inevitably join at some point and responsibilities between regulatory lawyers in particular and compliance officers will always overlap.

This isn’t something that needs fixing; if this results in a degree of “creative tension”, this isn’t necessarily a bad thing. I for one welcome my analysis being challenged by bright people who understand the market, wherever they sit within a company.

What are the biggest changes technology will bring to financial services?

Bitcoin and blockchain are the main innovations hitting the newswires this year, but without wanting to single myself out as a luddite, they are perhaps more interesting as examples of how financial regulation can accommodate innovation than they are in themselves.

The FCA has launched ‘Project Innovate’ to assist businesses that are developing new products and services that could genuinely benefit consumers; this is a genuine opportunity. More work needs to be done so that businesses understand how the “regulatory sandbox” can be used in a project development context, in particular whether the focus is on non-live testing of products and services or else on restricted live testing of new innovations, or a combination of the two.

It will also be interesting to see whether established rules will be sufficiently flexible to accommodate new innovations as they develop. We are used to products and services being tailored to accommodate often very technical regulatory requirements; it remains to be seen whether the dynamic can work successfully the other way around, with the focus on the design of the end services and the rules as the cloth that is cut to fit. Without this, regulation will always operate as the constraining factor, rather than the technology itself or the outcomes desired by clients.