London is the legal capital of Europe and the world. Is the capital’s status in jeopardy following the result of the EU referendum?
The legal sector has been experiencing massive growth in recent years with research commissioned by the Law Society showing growth at a rate of 8 per cent last year. The most recent figures suggest the UK legal sector is now estimated to be worth in excess of £26 billion a year. With these figures comes a quantifiable increase in jobs with 8,000 created each time there is a one per cent growth in legal services. However, with the referendum vote setting the UK up to leave the EU after 40 years, questions are rightly being raised as to what effects Brexit will have on London’s legal clout.
The growth in the legal sector has largely been fuelled by increased demand for the services of UK lawyers from abroad due to the City’s international renown. City based law firms have fostered a reputation of global expertise for the legal profession. This is reflected in the fact that numerous corporations use City firms to draft up contracts in EU law to govern their business contracts and disputes.
However, a large part of the allure of the City’s legal services (which make up the vast majority of the revenue) is the fact that there is a close working connection between the legal sector and the finance sector. With the true extent of the fallout from Brexit still unclear, finance markets will be unstable for a prolonged period of time. This creates a situation in which large banks and corporations re-evaluate their position with some banks already moving operations out of Britain. This has a whole host of negative effects on the legal sector as financial services provide the kind of contracts and disputes that make up the lifeblood of international law firms. In essence, there is a great deal of uncertainty in the financial sector and in the economy as a whole; a situation which Allen & Overy senior partner Wim Dejonghe described as being “rarely good for business”.
That isn’t to say that legal services will see a noticeable decrease in business immediately; in fact law firms are widely expected to benefit from Brexit – at least in the short term. The intricacies of EU law and the forty year build up will result in a drawn out process of legislative review for companies to ensure compliancy. This translates to a short term windfall for large city law firms as clients seek advice on how to best navigate the legal landscape post-Brexit. This effectively signals long hours and the opportunity to make a quick buck for corporate solicitors with clients affected by the result of the referendum.
However, this kind of short term opportunistic work is not sustainable in the long run. Advisory work quite simply cannot offer the same revenues as the premier league deals of mergers, disputes and contracts. As the Britain consciously uncouples from the EU, it is foreseeable that clients will look further afield to law firms that have the rights to practise EU law.
It is this very fear that has already prompted lawyers at Magic Circle firms including Freshfields and Allen & Overy to register in Ireland in order to ensure EU law can still be practised. UK competition lawyers are especially at risk of losing their right to plead before the European Court of Justice. Privilege is only afforded to lawyers of an EU bar or EU law society so the status of UK competition lawyers following Brexit is unclear. In the long run, Brexit will irreversibly change the current legal landscape.
Further down the line, the status of London as one of the world’s key financial and business centres will undoubtedly come into question. London has routinely been used as the gateway into Europe for a whole host of foreign firms. The American influence in Europe is felt most strongly in London, with the European headquarters of the investment banks JP Morgan and Goldman Sachs; as well as the law firms Baker & Mckenzie and DLA Piper located in the city. Several of the large financial institutions including HSBC , JP Morgan and Goldman Sachs have warned that jobs will move out of Britain following Brexit with HSBC intending to move 1,000 jobs to Paris. Such is the dependence of the financial institutions on the access to the single market through London. This in turn corresponds to a potential large decrease in revenues for law firms with banks being one of the largest drivers of business for international law firms.
Ultimately, the outcome of the EU referendum will undoubtedly result in great change in the legal sector. As the UK anxiously seeks to clarify its position with Europe, the future for many lawyers who rely upon EU membership to earn their livelihoods is looking increasingly bleak. The uncertainty in business that will arise up to and including the completion of Article 50 will result in a decline in the growth of London’s legal sector. Whether it threatens the capital’s reputation as the legal capital of the world remains to be seen.