There is no shortage of Libor work for law firms, but the magic circle is losing out to US rivals, says Alex Newman

The new year may be a time to start afresh, but the Libor scandal that dominated business headlines in the second half of 2012 is – for advisers – showing no signs of abating.

At Clifford Chance (CC), the news that its client Royal Bank of Scotland (RBS) is in the final stages of a settlement with US and UK regulators over its alleged Libor role means the firm's regulatory lawyers will have had a busy start to 2013.

Indeed, while the City's legal advisers have been so far eclipsed by US rivals on handling the fallout from Libor, CC has cause for cheer after last year advising Barclays as it paid out a £290m fine to US and UK regulators, with the bank becoming the first to admit manipulation of the widely used institutional interest rate benchmark.

Being first to the plate delivered a huge blow to Barclays' reputation. But as the Libor saga unfolded, the view quickly took hold that the UK bank had done well to swiftly resolve the matter and move on, given the scale of abuse among the world's largest banking groups.

Indeed, according to one regulatory partner, "all of the big firms" in both London and New York have played some sort of role – with around 20 major banks regarded as potentially exposed – and many institutions are expected to face larger penalties than Barclays.

This view of the gravity of the matter was reinforced in December when UBS – advised by Gibson Dunn & Crutcher – reached a $1.4bn (£930m) settlement with four regulators, dwarfing the penalty imposed on Barclays and setting a new record from the UK Financial Services Authority (FSA).

The FSA fined UBS a cool £160m, well over twice the £59.5m fine imposed on Barclays last summer, which was at the time the largest the City watchdog had ever handed out.

Such sums suggest UK agencies are belatedly moving towards the level of financial penalties long common in the US – a shift that will have major significance for the workloads of regulatory teams at leading City law firms.

December brought another highly symbolic indication of the dramatic impact of the Libor fallout, with Barclays recruiting former FSA chief executive Hector Sants to the newly created role of head of compliance and government and regulatory relations.

Such high-profile appointments are the City equivalent of banging out to the cheap seats the message that a humbled institution is intent on doing better in future.
Unsurprisingly given this context, there is no shortage of Libor work for other law firms, with substantive roles including Linklaters (Lloyds), Davis Polk & Wardwell (Bank of America Merrill Lynch), Shearman & Sterling (Credit Suisse) and Hogan Lovells (legacy HBOS).

Slaughter and May, Skadden Arps Slate Meagher & Flom, Latham & Watkins, Simpson Thacher & Bartlett, Paul Weiss Rifkind Wharton & Harrison, Sullivan & Cromwell, Debevoise & Plimpton, Allen & Overy and White & Case have all also landed roles on Libor-related matters.

As per early indications, Libor has proved a boon for leading US advisers at the expense of magic circle rivals. The more aggressive Stateside enforcement in white collar crime – UBS for example paid $1.2bn (£750m) to US agencies in its settlement – and far greater exposure to securities litigation was always going to play to American counsel.

Also highly problematic for City firms have been conflicts, given expectations that Libor could lead to inter-institution disputes. With many top City firms already advising a large handful of major banks on multiple product lines, it is telling that City advisers have been largely limited to advising retail-heavy UK banks, leaving investment banking groups to the Americans.

Freshfields Bruckhaus Deringer appears to have, likewise, restricted itself by advising its longstanding client the Bank of England, though any other stance would have looked odd.

With the collusive nature of the alleged behaviour, many firms were quickly conflicted out of representing more than one institution, meaning that – at least for one magic circle regulatory partner – the work has been "scattered across the market" and sometimes divided up "arbitrarily".

"The magic circle is not picking up the work, truthfully," he says. "Even in cases where the alleged collusion took place in London, it appears the big US banks are looking to US firms."

Losing out will prove frustrating, given that such high-stakes matters often bypass the tough pricing strictures common on bank panels. And once regulatory settlements are taken out of the equation, Libor's 'long tail' looks set to keep lawyers busy for years, both representing individuals facing regulators and potential prosecution and also with commercial disputes.

An early example of this is Barclays' forthcoming showdown with Guardian Care Homes owners Graisley Properties, in the first major Libor mis-selling test case scheduled for October this year.

Graisley Properties, which alleges that Barclays fixed Libor to provide borrowing rates it knew to be incorrect, is being represented by Brick Court Chambers' Tim Lord QC and litigation boutique Cooke Young & Keidan.

Other roles for individuals who might find themselves subject to litigation include Morrison & Foerster, which has taken the lead for former Barclays chief operating officer Jerry del Missier, while ex-chief executive Bob Diamond (pictured) is being advised by Norton Rose's Dorian Drew and Dechert's Andrew Levander.

The Serious Fraud Office (SFO) has dedicated a team of around 40 of its 300 staff to work on Libor, backed by £3.5m of Treasury funding should it fail to absorb the cost of the investigations. There is no doubt that there will be a huge dividend for the beleaguered SFO in securing a high-profile result in relation to Libor.

According to another Libor lawyer, there is likely to be a rise in related work for mid-tier advisers and litigation specialists, with the boutique Fulcrum Chambers representing one of the City bankers arrested by the SFO in December.

One adviser comments: "As we go down the levels of seniority where people are at the bottom end, they are likely to have different types of representation.

"Some individuals may have initially had representation through their employers, but there may be conflicts between the employers and the employee as the allegations become more specific."