As finance and technology continue to evolve side by side, the role of lawyers becomes increasingly significant in shaping future financial systems. With the complexity of money matters and the regulatory uncertainties surrounding emerging digital technologies, legal expertise is crucial in navigating the ever-changing landscape.
One area that is garnering particular attention is the use of blockchain technology. While blockchain is commonly associated with speculative digital assets like bitcoin, many banks are exploring its potential uses. Shortening settlement cycles using blockchain can enhance market safety and efficiency, according to Etay Katz, a partner at Ashurst. However, the regulatory landscape for blockchain varies across jurisdictions. Singapore and Hong Kong regulators are supportive, while US regulators have been more cautious, especially following scandals like the collapse of FTX. In contrast, the European Union has taken a proactive approach with the introduction of the Markets in Crypto Assets (Mica) regulation set to come into force in 2024.
Another area of interest is stablecoins, a form of cryptocurrency pegged to an underlying currency to maintain its value. While stablecoins have been met with skepticism due to controversies surrounding some companies behind them, they have also found use in humanitarian aid. Richard Hay, UK head of fintech at Linklaters, advised the United Nations High Commissioner for Refugees on the use of stablecoin USD Coin in sending donations to internally displaced people in Ukraine. The use of stablecoins, which can be easily tracked due to their centralized nature, offers new possibilities for transparency in donations and aid distribution.
Legal advice is crucial in mitigating risk in the wake of crypto scandals and addressing the concerns of traditional financial players. Daniel Csefalvay, a partner at law firm BCLP, highlights the need for mainstream financial services players to de-risk themselves from crypto-related businesses. Teething problems with distributed ledger technology are not the only domain where lawyers play a pivotal role in financial innovation.
In December, Freshfields Bruckhaus Deringer was involved in a strategic partnership between the London Stock Exchange Group (LSEG) and Microsoft. This deal allows Microsoft to establish itself within the financial services space, while LSEG gains a tech partner during a time of cutting-edge innovation. The complexity of this agreement required careful legal considerations. Giles Pratt, partner at Freshfields, emphasizes the importance of long-standing relationships and the ability to navigate complex deals that combine fintech, pure tech, and financial services elements.
Pratt notes the shifting nature of IT contracts, which have moved from defined end games to more agile and adaptive agreements. The rapid pace of technological advancements, such as artificial intelligence, means that established companies may seek tech solutions through acquisitions rather than building in-house capabilities. As a result, the demand for legal counsel experienced in technology-related deals will continue to grow.
The intersection between finance, technology, and law brings forth exciting opportunities and challenges. As financial systems undergo transformation, lawyers will play a fundamental role in shaping and navigating the regulatory landscape, fostering innovation, and ensuring compliance in this dynamic environment.
