Sydney, Australia. Photo: Taras Vyshnya/Shutterstock.com

Australia is making sweeping changes to its financial services industry – and that has been a boon for law firms.

The changes have resulted in a spike in work, prompting firms to hire additional risk and regulatory experts. Norton Rose Fulbright hired Danielle Avery and Philip Charlton as senior risk advisers in Sydney last year, for example. And earlier this week, Herbert Smith Freehills brought on Joseph Longo, a former Deutsche Bank general counsel in Hong Kong, as a senior adviser for its financial services regulatory practice in Perth.

Australian firm MinterEllison also launched a risk and regulatory practice last year, with Big Four accounting firm veteran Rahoul Chowdry. Other firms, including Jones Day and even the legal arm of PricewaterhouseCoopers, told Law.com's The Asian Lawyer that they are looking to add partners in financial services.

The firms have good reason to hire. In a report released in February, former High Court Justice Kenneth Hayne QC recommended 76 changes be made to the Australian financial industry – changes that would produce tougher regulations and improved governance in the troubled sector. The report was the result of a year-long, unprecedented government inquiry into misconduct in the country's banking and financial services sector.

The revelations included some stunning findings: bank employees taking bribes to process loans based on fake documents; high-level employees deceiving a regulator investigating a financial institution alleged to be charging customers for financial advice it never gave; pressuring a young man with Down Syndrome into buying useless insurance products; and a financial institution continuing to withdraw money for life insurance premiums from customers' accounts after they had died.

Australia's treasurer Josh Frydenberg said in response to the inquiry (called a Royal Commission) that the government would take action on all 76 recommendations. The national firm Clayton Utz said in its own report that the Hayne report will "herald a new era in regulatory enforcement of the financial services industry in Australia".

During the year-long inquiry leading up to the report, law firms were already busy helping clients prepare for public hearings. In fact, King & Wood Mallesons, which represented at least four clients, was investigated by a state occupational health and safety regulator after the regulator received a complaint that the firm was overworking employees who were doing Royal Commission-related work.

The report's recommended changes mean work continues to flow to firms. One recommendation, in particular, stood out for Squire Patton Boggs' Australia managing partner Campbell Davidson – one that calls for the Australian Securities and Investments Commission (ASIC) to step up on enforcement actions. 

In the report, Hayne criticised the ASIC for its reluctance to prosecute financial institutions and its failure to stand its ground in investigations. "Too often, I suspect, ASIC has sought to accommodate the expressed wishes of the entity rather than determine what ASIC wants from the negotiation, tell the entity what it wants and insist upon it being provided promptly," he wrote in an interim report released last September.

ASIC is now taking a more proactive stance in enforcement, Davidson said – one that's been called the 'Why not litigate?' approach. Davidson said this should serve his firm well.

"Our strength is in the investigations and enforcement side of things; the class action experience," he said, noting that Sydney partners Amanda Banton's and Shaan Palmer's work during the global financial crisis prepared them for the investigations and litigation related to the Royal Commission.

In addition, Australian treasurer Frydenberg has said the government will add $120 million in funding to regulators, including the ASIC, to ensure they have the resources to carry out their regulatory duties.

Already, Australia has seen a significant uptick in investigations and enforcement actions, voluntary remediation programmes and class actions, said Jonathan Gordon, who heads Ashurst's global financial regulatory team from Sydney.

Law.com reported earlier this month that class action lawsuits filed in Australia have risen sharply, driven in part by the Royal Commission. Last year saw a total of 64 class actions filed – triple the average of 22 filed each year. And 18 class actions were filed just in the first half of this year, including one against wealth manager AMP Ltd. by local plaintiff firm Slater and Gordon. That case alleges that more than two million Australians had been charged excessive fees on their superannuation accounts.

The amount of work related to reviewing the operations and models of financial services providers also has increased, Gordon added.

Hayne emphasised in the report that every financial services entity, whether named in the reports or not, must review its culture and how it governs itself and manages its employees and affiliates. That culture, he said, is a root cause of the misconduct.

"In looking at culture and governance, every entity must consider how it manages regulatory, compliance and conduct risks. And it must give close attention to the connections between compensation, incentive and remuneration practices, and regulatory, compliance and conduct risks," Hayne wrote.

The disputes and review work will eventually tail off, as disputes end and companies adjust to the new compliance environment, implementing new culture and governance systems. But there will be yet another area of work to keep law firms busy when that occurs: mergers and acquisitions.

"We're going to see significant restructuring and consolidation," said Wayne Spanner, Australia managing partner of Norton Rose.

Australia has already seen some resulting M&A activity. In October, the Commonwealth Bank of Australia, which made up service charges and engaged in other misconduct, sold its global asset management business to Japanese bank Mitsubishi UFJ Financial Group Inc. for $2.9 billion; Herbert Smith served as Australian counsel to the Commonwealth Bank.

And in November last year, AMP sold its Australia and New Zealand life insurance division to London-based Resolution Life Group Holdings for $2.3 billion; King & Wood advised AMP while Ashurst served as Australian counsel to Resolution Life.

"There have been, and continue to be, structural changes in the industry," said MinterEllison's Chowdry, a partner and national financial services leader at the firm.

Global firms are not just hiring to meet the increased demand; they are also shifting expertise to Australia. Norton Rose, for example, relocated financial services regulatory partner Charlotte Henry from London to Sydney last month. Henry will focus on sharing the firm's global experience of how the U.K. and European markets reacted to the regulatory changes during the global financial crisis in 2008.

Ashurst is also thinking about tapping into other offices. "This is a way in which our global partnership puts us at a real advantage, because we can utilise specialists in other jurisdictions to provide their expertise," said Ian Bolster, a disputes partner at the Anglo-Australian firm's Sydney office.

Firms also have looked for expertise outside of law firms. Norton Rose's Avery joined from Westpac Banking Corp., where she was most recently the head of risk, strategy and operations, while Charlton came from the ASIC, where he served as chief legal officer and most recently as head of international strategy.

Meanwhile, MinterEllison has a group of non-lawyers doing Royal Commission work. "There are no lawyers in my immediate team," said Chowdry, noting that he works mostly with former bankers, risk management specialists and former regulators. Donna Worthington, for example, who headed strategy and operations at the Commonwealth Bank, joined the risk and regulatory practice as a partner in June of last year.

Chowdry himself is not a lawyer. He spent almost 30 years as a financial services partner at PwC. He joined MinterEllison in February 2018, just as the public hearings for the Royal Commission were starting, to launch the risk and regulatory practice.

The timing to launch the practice was fortunate, he said. "It was prescient."

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