HSBC Holdings' GC Richard Hennity explains how the role of in-house counsel at investment banks is changing in the face of regulatory scrutiny. Caroline Hill reports

"You won't be surprised to hear that it has been really busy," says Richard Hennity, general counsel of HSBC Holdings, of life at the bank's 75-strong legal group.

Hennity joined HSBC in 1999 as a legal adviser, and now, as GC of group legal at the bank, supports more than 100,000 people – including senior management – employed across 10 departments ranging from human resources to finance, IT and risk.

Hennity deftly draws a diagram of the goliath that is HSBC's legal function, which since January has been led by chief legal officer (CLO) Stuart Levey. 

Globally, the bank and its legal teams are divided along both geographical and industry lines, with five regional legal heads covering Latin America, Europe, the Middle East and Africa, North America and Asia, also splitting between them responsibility for leading the bank's industry-focused legal teams: commercial banking, global banking and markets, retail banking and private banking. 

Hennity and the regional heads also sit on HSBC's legal executive committee board, which is led by Levey, who took over from predecessor Richard Bennett in January. Bennett held the position of group managing director and group general counsel, and it is not yet known whether HSBC will appoint someone else as group general counsel or whether the role will be subsumed by the new CLO position. 

Unsurprisingly, Levey, who previously served as the first under secretary for terrorism and financial intelligence in the US Department of the Treasury from July 2004 to February 2011 under Presidents Bush and Obama, "has been heavily focused on regulatory matters in the US and is still finalising the structure of the legal department", Hennity says. 

richard-hennity-hsbcNew focus

Some changes may be on the horizon in light of a new focus on 'global assurance' – a shift away from a regional and geographic approach towards the creation of consistent global standards.

In common with other financial institutions, the ground has been pulled out from under HSBC's feet over the past four years, and Hennity has already overseen a number of new initiatives as the bank grapples to adjust to the post-credit crunch, risk-abhorrent regulatory climate. 

Towards the end of last year, group legal set up a 'near shoring' venture in Sheffield, intended to be a centre of excellence for dealing with third-party supply contracts worth billions of pounds. The office, which has been spearheaded by deputy general counsel Richard Given, currently houses 17 lawyers and paralegals. 

Historically, the group has managed third-party supply arrangements on a jurisdiction-by-jurisdiction basis. But this latest venture is part of the move to centralise organisation and reduce legal risk exposure through a greater degree of quality control.

Elsewhere, Hennity and his team have overseen a raft of disposals of unwanted businesses and rights issues. In March, Clifford Chance advised HSBC on the sale of its Asian and Latin American insurance businesses to AXA and QBE for $914m (£578m), while in February Norton Rose took the lead role for HSBC on a THB17.5bn (£349m) sale of its Thai banking and wealth management business to Thailand's Bank of Ayudhya. 

Last year, HSBC sold its US credit card arm to Capital One Financial Corp for $2.6bn (£1.7bn), led by Sullivan & Cromwell. 

Inevitably, the blistering heat of the regulators' focus on what Hennity refers to as the "plumbing" of the banking sector has brought its own challenges. One symptom of this is a dramatic increase in IT and operations lawyers in group legal. What was, three years ago, a team of three lawyers has grown to 60, and Hennity says: "In order to understand the risk, you need to fully understand how things work. In IT and operations, there are 90,000 people and, if you don't know what these people are doing, you can't understand the risk." 

A further growth area is the industry springing up between risk management and audit that could colloquially be dubbed 'checking up on people'. Three lawyers in Hennity's team are now part of a legal risk assurance programme, responsible for ensuring that risk and control measures are implemented across the business. Hennity explains: "Unfortunately, the days of simply relying on people are gone." 

Last month, HSBC also named former US government official Robert Werner as head of global standards assurance in reaction to what the bank describes as lapses in its legal compliance programmes.

Last but definitely not least, while Hennity is at pains to stress that HSBC Holdings has itself had no direct involvement in any of the controversies to hit the international businesses – including allegations of mis-selling of interest rate hedging products, money laundering and the latest investigations in the US into Libor rigging – inevitably its senior management and legal team have been at the forefront of efforts to co-ordinate a joined-up and comprehensive response. 

Has it been a headache? "More like a migraine. Joking aside, at times it has been difficult and I think this will continue."

However, the result of the increase in regulatory scrutiny, Hennity points out, has been a sea change in the role of GC within financial institutions, where the risks faced now compared with five years ago are far greater. 

"The general counsel role is more and more defined by the industry they work in," he observes. "If you are general counsel of a regulated industry that is present in 87 countries with profits of $20bn, then your days of worrying about being close to the business have gone." 

Becoming empowered

In fact, lawyers in financial institutions have become decision makers, and Hennity observes: "Due to the risks of operating in the financial industry, we have become empowered and we are a key part of the decision-making process.

"Decisions are increasingly being governed by risk rather than profit. Ultimately, it's about finding the right balance between risk and reward." 

The expectations of the way in which GCs in financial institutions are expected to deliver advice also sets them apart from other industries, Hennity says. 

"You talk to GCs in other industries and they are just not subject to the same risk management disciplines as we see in the financial industry. I suspect they sometimes think we are just talking gobbledygook.  

"Our advice is refined to a number out of 100. If, rather than saying 'it's not likely' you say there is a 30% chance of rain, and then it rains, people will ask why you only gave it a 30% chance. It's much more granular and specific."

With so much focus on change within the business, it is perhaps unsurprising that Hennity has little patience for any detailed discussion of the bank's external panel, how it is reviewed or how rates are handled. HSBC conducts an annual assessment of advisers but, unlike peer UK banks such as Barclays, tries to avoid the fanfare surrounding panel reviews. 

Earlier this month, Legal Week reported that the bank added US law firms Cleary Gottlieb Steen & Hamilton, Latham & Watkins and Mayer Brown to an existing global panel comprising Allen & Overy, Clifford Chance, Freshfields Bruckhaus Deringer, Linklaters and Norton Rose. 

Commenting on external advisers, Hennity says: "It's all about the relationship. You leverage off the relationship to ensure you receive a quality product and have the right people on the file."

Unlike many GCs in the current climate, Hennity insists that he does not subscribe to squeezing his lawyers on costs: "If you focus purely on price, of course it will affect the service you're given. If I receive a quality product, I am happy to pay a fair price for it."

Assessing whether he is paying a fair price is made infinitely easier by a team in Malaysia, whose sole job it is to review legal bills in depth, analysing how money is being spent and finding efficiencies as well as picking up on any errors or discrepancies. 

And rebutting any suggestion that HSBC pays over the odds, Hennity adds: "If I don't get value for money, I'm not happy. At times, I think the recovery rates for HSBC are lower than our law firms would like."

Hennity describes his hobbies outside of work as "smashing down properties and rebuilding them". A keen golfer, Hennity's days of long weekends on the golf course are now consigned to the past as he has three children under five.

All in all, it is no surprise to hear that things are really busy. 

Hennity's career timeline

2007-present: General counsel of group legal at HSBC Holdings

2006: Returns to group legal in London 

2003: Head of the legal, compliance and secretarial department of HSBC Singapore 

2000: Moves to group strategic planning department of HSBC Holdings

1999: Joins HSBC Holdings as legal adviser in group legal 

1997-98: Legal adviser in Credit Lyonnais' legal department

1993-97: Trainee and banking associate at Taylor Joynson Garrett, London (now Taylor Wessing)