Banking and finance

In a nutshell

Banking and finance is a giant sector internationally, intersecting with various industries and overlapping with multiple other practice areas. Banking and finance lawyers may work in any one of the specialist areas described below, but all deal with the borrowing of money or the management of financial liabilities. Their task is to negotiate and document the contractual relationship between lenders and borrowers, and to ensure that their clients' best legal and commercial interests are reflected in the terms of loan agreements. It is a hugely technical, ever-evolving and jargon-heavy area of law.

  • Straightforward bank lending: a bank lends money to a borrower on documented repayment terms.
  • Acquisition finance: a loan made to a corporate borrower or private equity sponsor for the purpose of acquiring another company. This includes leveraged finance, where the borrower uses a very large amount of borrowed money to meet the cost of a significant acquisition without committing a lot of its own capital (this is called a leveraged buyout or LBO).
  • Real estate finance: a loan made to enable a borrower to acquire a property or finance the development of land and commonly secured by way of a mortgage on the acquired property/land.
  • Project finance: the financing of long-term infrastructure and public services projects, where the amounts borrowed to complete the project are paid back with the cash flow generated by the project.
  • Asset finance: this enables the purchase and operation of large assets such as ships, aircraft and machinery. The lender normally takes security over the assets in question.
  • Islamic finance: Muslim borrowers, lenders and investors must abide by Shari’a law, which prohibits the collection and payment of interest on a loan. Islamic finance specialists ensure that finance deals are structured in a Shari’a-compliant manner.
  • Financial services regulation: lawyers in this field ensure that their bank clients operate in compliance with the relevant financial legislation.

Banking and Finance

What lawyers do

  • Meet with clients to establish their specific requirements and the commercial context of a deal.
  • Carry out due diligence – an investigation exercise to verify the accuracy of information passed from the borrower to the lender or from the company raising finance to all parties investing in the deal. This can involve on-site meetings with the company’s management, so lawyers can verify the company’s credit profile.
  • Negotiate with the opposite party to agree the terms of the deal and record them accurately in the facility documentation. Lenders’ lawyers usually produce initial documents (often a standard form) and borrowers’ lawyers try to negotiate more favourable terms for their clients. Lawyers on both sides must know when to compromise and when to hold out.
  • Assist with the structuring of complicated or ground-breaking financing models and ensure innovative solutions comply with all relevant laws.
  • Gather all parties to complete the transaction, ensuring all agreed terms are reflected in the loan and that all documents have been properly signed and witnessed. Just as in corporate deals, many decisions need to be made at properly convened board meetings and recorded in written resolutions.
  • Finalise all post-completion registrations and procedures.

Realities of the job

  • City firms act for investment banks on highly complex and often cross-border financings, whereas the work of regional firms generally involves acting for commercial banks on more mainstream domestic finance deals. If you want to be a hotshot in international finance, then it’s the City for you.
  • Lawyers need to appreciate the needs and growth ambitions of their clients in order to deliver pertinent advice and warn of the legal risks involved in the transactions. Deals may involve the movement of money across borders and through different currencies and financial products. International deals have an additional layer of difficulty: political changes in transitional economies can render a previously sound investment risky.
  • Banking clients are ultra-demanding and the hours can be long. On the plus side, your clients will be smart and dynamic. It is possible to build up long-term relationships with investment bank clients, even as a junior.
  • Working on deals can be exciting. The team and its counterparty are often working towards a common goal, usually under pressure and with heavy time constraints. Deal closings bring adrenaline highs and a sense of satisfaction.
  • You need to become absorbed in the finance world. Start reading the Financial Times or the City pages in a broadsheet newspaper for a taster.

Current issues

October 2023

  • Rising inflation and the knock-on effects of the war in Ukraine, especially the rapid rise in energy prices, have caused economic growth in most major developed economies to slow down or go into reverse. While it seemed we were heading into a global recession in late 2022, economic grow in key areas has somewhat balanced things out for now – however, in tandem with bank stresses including the collapse of SVB earlier this year it’s clear that things are currently hanging in the balance…   

  • According to the Office of National Statistics (ONS), UK inflation was 10.1% in the year to July 2022; the highest rise in 40 years, with the price of energy and staple goods such as food rising especially rapidly. According to the Office of National Statistics (ONS), UK inflation reached its highest in 40 years last year at 10.1%. At the time of writing inflation is at more than four times the Bank of England’s target of 2% at 8.7%. As a result the Bank has raised interest rates significantly to 5%, something that may raise as high as 7%.The base rate is the rate of interest at which banks can borrow money from the Bank of England. 

  • Although mortgage rates have risen drastically as a result of base interest rate rises, savings rates have not increased at the same speed. This suggests banks are taking advantage of the higher base rate and not passing on these benefits to consumers. The Financial Conduct Authority (FCA), which regulates the UK financial market, is bringing in new rules that force banks to demonstrate that they are offering customers reasonable savings rates. 
  • Credit rating agency Fitch predicted that sovereign debt held by EU banks would increase significantly as a result of the pandemic and the war in Ukraine, with central governments scrambling to cover losses in the private sector. This is likely to remain the case in the coming years, as alleviating the debt more quickly would require harsh austerity measures or potentially unpopular tax rises. 

  • One major impact of the pandemic on the banking sector has been the role that technology has played, particularly in consumer banking. As high street branches were forced to shut, customers increasingly did their banking online. Responding to competition from FinTech companies and the ‘challenger banks’, leading high street banks are investing heavily in digital services and online and mobile banking. A report by Expleo found that 56% of banks are ‘putting digital disruption at the heart of their strategy.’  

  • The Bank of England indicates that between 2019 and 2021, corporate debt in the UK increased by £79 billion. This rise in debt mostly affected small and medium-sized enterprises (SMEs) specifically in ‘hospitality, arts, and recreation.’ 

  • According to Forbes, the contactless payment market has grown exponentially. The rise in cashless payments, however, has also had a concomitant rise in fraud. According to the UK Finance 2023 Annual Fraud Report, £1.2 billion was stolen by fraudsters in 2022.   

  • The UK’s Investment Firms Prudential Regime, which came into effect on 1 January 2022, made significant changes to the way UK investment firms are regulated. The proposed changes largely aligned the UK with similar measures taking form in the EU.  

  • The Bank for International Settlements introduced Basel III in 2019. This group of measures is designed to strengthen regulation and minimise risk in the banking sector internationally. The process hasn't been entirely smooth: the US and European members of the Basel committee disagreed over the models used to assess the risk that banks have, which delayed the implementation of the rules. Over the next few years, law firms will be kept busy providing advice and guidance to the banking sector on how to stick to the new rules. 

  • According to the Bank Administration Institute (BAI), bankers will take careful steps when dealing with cryptocurrency investments, even though ‘half of millennials and Gen Z’ own crypto in some capacity.