City firms discover love for humble regulation lawyers as the FSA gears up for intrusive stance

Has there ever been a better time be a specialist in financial services regulation? For years, such lawyers toiled away little-noticed within a dozen or so major commercial firms, prospering in sizeable numbers in Allen & Overy (A&O), Clifford Chance (CC) and CMS Cameron McKenna. But despite the creation of the Financial Services Authority (FSA) a decade ago, this group was hardly the most visible or loved of its breed, despite in recent years enjoying some of the highest charge-out rates in the City.

All that changed last year with the collapse of Northern Rock and the ensuing chaos which thrust such advocates into the headlines. And the rising status of bank regulation lawyers has been even more obvious since the collapse in September of Lehman Brothers. There is no doubt that the unchallenged regulatory prowess of Sullivan & Cromwell and Cleary Gottlieb Steen & Hamilton has helped both firms snap up a string of choice post-Lehman mandates.

This side of the pond, the prominence of Freshfields Bruckhaus Deringer's Michael Raffan advising the Bank of England during numerous market interventions has probably been the most high-profile illustration of the importance of such adviser's counsel.

With the FSA ushering in a more intrusive style of regulation, putting more weight on the market significance of financial institutions rather than focusing resources on the most 'risky' businesses, demand for the limited pool of such specialists is set to soar.

Some upwardly mobile firms such as Berwin Leighton Paisner (BLP) have already moved to position themselves, with the firm recently recruiting A&O's regulatory investigation chief Sidney Myers. And established leaders in the field have also moved to expand their ranks, with CC, for example, hiring Russell Jones & Walker's respected regulatory specialist Judith Seddon, who will join its eight-partner group in London.

Others are specifically targeting high-stakes enforcement actions and cases involving criminal sanctions; last month Reynolds Porter Chamberlain picked up former FSA wholesale enforcement manager Steven Francis. LG, meanwhile, also strengthened its regulations practice after hiring Richard Everett, a former senior lawyer with the regulator, and Barlow Lyde & Gilbert recently hired FSA lawyer Emily Benson.

A related trend has seen firms target so-called criminal regulatory services (CRS). BLP recently drew a team of 11 lawyers to tackle CSR issues, while CC, Weightmans, Weil Gotshal & Manges and Wragge & Co are all active in the area.

Of course, no-one is sure which areas of regulation will be most in demand, other than that there will be more of it in general, with the FSA now projecting an increase in its staff from around 2,500 to 3,000 by 2010.

But despite an increase in resources and the FSA moving to step up its until-now rare use of outside lawyers – the regulator currently spends around £500,000 a year on legal fees, some of it with Norton Rose and Ashurst – the real interest for law firms will be in counselling shell-shocked banks as they become acquainted with a more robust form of oversight than they have been used to. And aside from the pure regulation play, such practices are often key in winning big-ticket banking mergers, especially those put together in haste amid market turmoil. Linklaters last year saw lucrative US regulatory duties for Royal Bank of Scotland turned over to Shearman & Sterling on the takeover of ABN Amro as it lacked such a team in the US. Unsurprisingly, the firm is now looking to hire in the area.