Discussing current affairs and industry trends

Current affairs wrap up: business, legal and markets insights from June 2024

Each month, Jake Schogger (ex-Magic Circle lawyer and founder of City Career Series) and Peter Watson (ex-stock broker, head hunter and founder of Watson's Daily) host a free webinar summarising the key current affairs and trends from the previous month, including insights from a business, markets and legal perspective.

To register for future sessions, check out https://citycareerseries.clickmeeting.com

This blog post covers topical legal current affairs from June 2024, including Revolut's struggle to secure a banking licence, the rules on UK workplace relationships in light of the Elon Musk's controversy, the recent Magic Circle law firm pay hikes, and the steps involved in pursuing an IPO via the London Stock Exchange.

Please note that these articles do not constitute legal advice and should not be relied upon. They simply reflect the author's research and opinion.

Revolut has decided to move its HQ to a more central location in Canary Wharf despite its ongoing lack of a full banking licence. This is good news for Canary Wharf Group, which appears to be seeing a bit of an exodus of tenants. WHAT DO YOU NEED TO GET A BANKING LICENCE AND WHY IS IT TAKING REVOLUT SO LONG TO GET ONE?

Revolut was granted a banking licence by the Bank of Lithuania in 2021, which allows it to offer full banking services in several European countries. However, in the UK, Revolut is currently a regulated “e-money” institution, without a full banking licence.

This isn’t ideal for Revolut, given its many millions of UK customers, as without a banking licence:

It cannot lend money in the UK – for example by providing mortgages - meaning it’s missing out on interest payments as a source of revenue; and
It cannot directly hold deposits (instead, deposits are held by partner banks), as without a banking licence, deposits are not protected under the European Deposit Insurance Scheme.

This means that consumers are unlikely to use Revolut as their primary bank account.

According to Deloitte, to secure a banking licence, an organisation must:

Inform the PRA and FCA of the intention to apply for a banking licence;
Work with the regulators throughout the application proxess;
Attend a high-level summary meeting, which involves answering a comprehensive set of detailed questions about its business plan;
Respond to the issues subsequently raised in writing by the regulators;
Submit a detailed regulatory business plan; and
Attend a challenge session where regulators further probe the proposition.

Then, if all goes well, the organisation will apparently progress to yet another stage of the process, which can involve more focus on its IT architecture, business continuity planning, tests, audits, and more. If a banking licence is granted, the bank must then comply with stringent reporting and monitoring requirements.

Apparently the grant of a banking licence typically takes around a year. However, Revolut applied in 2021 and is still waiting. Some of the reasons for this apparently relate to:

IT issues delaying Revolut’s reporting of annual accounts;
Concerns raised by Revolut’s auditor about its revenue reporting;
Revolut’s ownership structure;
Certain alleged EU regulatory breaches; and
Issues with Revolut’s corporate culture.

Sources / further research:

IN MUSK-RELATED NEWS – the Wall Street Journal published a damning in-depth piece about Musk’s questionable relationships with employees/ex-employees. If the allegations are proved to be correct, this could be disastrous for all of his companies as he is the face of those companies and they don’t appear to have realistic succession plans. I do, however, believe that Musk is too important to too many companies, industries and, indeed, America so I wouldn’t be very surprised if this story just faded away. WHAT ARE THE CURRENT RULES ON COMPANY RELATIONSHIPS AND AREN'T STRICTER RULES ON THIS A BREACH OF YOUR RIGHTS?

In the UK, there are no laws that directly ban employee relationships.

Now, employers could theoretically try to introduce policies that regulate such relationships. This is the approach sometimes taken in the US, with some employers requiring employees to contractually agree not to commence personal relationships with other employees, or imposing contractual terms that govern the conduct of employees who are in relationships.

However, under UK law, it’s not so simple.

If a UK employer tried to take a similar approach, this could infringe Article 8 of the Human Rights Act, which protects your right to respect for your private life, your family life, and your home. Note though that this right can be balanced against an employer’s legitimate interest.
There’s also a real risk that if an employee is forced to resign in light of a relationship, this could constitute constructive dismissal, and potentially even result in a discrimination claim.
Of course, where someone more senior and powerful is in a relationship with a junior employee, this can cause issues around favouritism and bias, especially if the junior employee is handed professional benefits as a result of the relationship. In such circumstances, there’s perhaps an argument that the senior employee risks being in breach of their contractual duties to act in the company’s best interests (assuming such duties have been codified).

Either way, it can all be a bit of a minefield.

With this in mind, a safer approach might be for an employer to impose a policy requiring staff to disclose workplace relationships, so that employers can at least take steps to avoid conflicts of interest (whilst carefully ensuring that such steps could not be perceived as discriminatory). A policy might cover things such as the need to maintain confidentiality, avoid conflicts of interest and favouritism, maintain professionalism and respect, and so on.

Sources / further research:

There’s been a lot of comment on junior lawyers earning upwards of £150,000 among “magic circle” firms, while some American firms pay even more. This could have some unintended consequences but clearly British firms want to keep up with the Kennedys. This reminds me of what happened in the UK with investment banking in the 90s when the Americans came waving their chequebooks – and look at what happened since then! ARE THESE COMPANIES THE OUTLIERS OR IS EVERYONE HAVING TO INCREASE SALARY SCALES SO THAT THEY DON'T SEE AN EXODUS TO AMERICAN FIRMS?

I think direct competitors of elite US law firms – including the Magic Circle firms and Silver Circle firms with similar practice strengths – will have to continue to increase salaries if they want to recruit the best talent, and retain that talent post-qualification.

They may not need to directly match US salaries, but they’ll likely need to close the gap.

In the past, these firms seemed to rely on prestige, the perception that their training is superior, and the belief that the work/life balance was significantly worse at US firms.

However, I don’t think candidates believe in these notions so much any more, and even if they do to some extent, it’s often not enough to persuade someone to do similar work (and still work long hours) but earn many tens of thousands of pounds less.

Smaller firms that offer genuine work/life balance, or focus on practice areas, clients or sectors neglected by the elite, will be under less pressure to pay salaries in the hundreds of thousands however, as they’re generally looking to hire lawyers who aren’t willing to work at – or don’t have the right expertise for - the largest firms.

It has gone a little crazy though. When I secured my training contract, the Freshfields NQ salary was around £67,500. So it has more than doubled in the space of just over a decade!

Shein files confidential paperwork ahead of possible London listing (Financial Times, Ivan Levingston, James Fontanella-Khan, Laura Onita and Michael O’Dwyer) we see that the online fast fashion behemoth has filed confidential paperwork with the FCA in preparation for its expected IPO on the London Stock Exchange. Shein still needs to get approval from Beijing authorities to list in London. This is not a given just yet as the company could still list elsewhere – Hong Kong, for instance. * SO WHAT? * As things stand at the moment, it looks like there would be no objection to a London listing whoever wins the election. The politicians seem to be concentrating more on the size of the listing and the “victory” of nabbing a whale from New York rather than allegations of forced labour in China and/or concerns that it is somehow being “controlled” by Beijing. I still think that there is MASSIVE litigation risk with Shein given its record of piling up the lawsuits for copying designs. WHAT PAPERWORK DO COMPANIES HAVE TO SUBMIT AND WHERE WHEN THEY WANT TO LIST ON THE LSE?

IPO stands for initial public offering, which refers to the first time a company lists its shares on the stock exchange and sells them through the equity capital markets. The shares are sold to institutional investors, other professional investors, and the general public.

Given that the public – i.e. non-professional investors – are involved, the regulatory process around IPOs can be strict and laborious. It’s great for the lawyers and bankers though!

To give a high level overview of the process leading up to an IPO:

A company will first appoint its advisers, including an investment bank to act as an underwriter. Underwriters essentially agree to buy any shares that remain unsold after the launch of an IPO – for a fee, of course - meaning the company is guaranteed to raise the amount it is seeking to raise. Lawyers, accountants and specialist advisers also usually join the team at the stage.
The advisers will then carry out due diligence into the company’s finances and operations, which includes looking into potential risks, regulatory compliance, financial reporting, and so on.
On this basis, they produce a prospectus, a legally-required document that promotes the offering to investors. There are strict rules around what this must include, including information around financials, the business model, risks, the management team, the IPO offer, and more.
The company must also submit its admission documents with the Financial Conduct Authority, and comply with any follow-up requests.
In addition, the company will need to set the share price and specify how many shares will be allocated and how they will be allocated. This is usually done in conjunction with an investment bank, appointed in part to help assess investor interest.
After all this, the company will market its offering, circulating the prospectus to large prospective investors.
It will then apply for the listing date, and re-register as a public company. If all goes to plan, it can then begin trading.

Note that some of these steps may be taken simultaneously, so it’s a bit of a simplification!

Sources / further research: