The In-House Lawyer (IHL): Describe your career before your current role with TP ICAP and the company today.
Philip Price (PP): I qualified as a solicitor back in 1990 and then held a series of roles in investment banks, private equity firms and hedge funds. I joined Tullett Prebon in 2015, which merged with ICAP to form TP ICAP in 2017. The most significant M&A milestone since then has been our acquisition of Liquidnet, an electronic trading platform for asset management institutions which was acquired in October last year.
We have quite a few businesses under the banner of the TP ICAP Group, of which the largest is our global broking business. As the largest inter-dealer broker in the world we provide access to global financial and commodities markets, and we do this by matching buyers and sellers of financial products, giving clarity around independent pricing and data in the process.
Let me give you an example. We might be sitting between, for instance, two investment banks one of whom wishes to acquire and the other who is willing to write an interest rate derivative contract. Both parties will be able to see how the price curve for that derivative works and, with our input, be able to price that instrument appropriately. Such a contract may allow the bank to manage their own internal risks or provide credit protection to their clients. TP ICAP does not receive fees in the same way that banks do, taking the difference between what a buyer is willing to pay and a seller is willing to sell at. Rather we get paid on volume; an extremely small percentage commission based on a large number of total contracts.
In the energy and commodities sector we perform a similar function bringing together buyers and sellers of specific instruments or contracts. TP ICAP has continued to diversify in this sector with a recent push into renewables and non-fossil fuel broking and we are now the largest oil broker in the world.
All of the broking activity undertaken by the group manifests itself in data. If you are active in the market or a data provider such as Bloomberg or Refinitiv and you want to understand what activity is going on in the market – what banks are doing to protect themselves – you need objective, independent data. TP ICAP as the largest inter-dealer broker in the world is the biggest provider of over-the-counter (OTC) data.
IHL: What were some of the challenges you faced in getting the acquisition of ICAP over the line?
PP: Both Tullett Prebon and ICAP had oil brokerage and financial data elements to their business, so when we brought these together it was akin to Manchester United merging with Manchester City; two firms operating in the same space who had been quite aggressive competitors for a long time who were now working together.
We made this move because commercially there were obvious opportunities in terms of scale and market share. Naturally, the transaction had some interest from anti-trust and financial services regulators, whose focus was on the market impact of such a combination. When examining the transaction, the Competition and Markets Authority didn’t just consider the impact of the deal in terms of inter-dealer broking in the UK, they also examined the impact of a deal to a number of related markets to a high level of detail. In our case, we had a lot of scrutiny over the deal in the United States and Singapore in addition to the UK. When I look at my role from when I was asked to lead on the ICAP acquisition back in March 2015 it was really nine months of what I call ‘execution slog’ – a lot of heavy lifting, a lot of time with internal and external lawyers, bankers and auditors and involvement in commercial discussions.
IHL: You’re a part of the TP ICAP board. How do you split your work between business and legal matters?
PP: My role during the ICAP acquisition was one of a general counsel or senior legal officer, and if I compare that with our recent Liquidnet acquisition now that I have a board position, it’s clear that things have changed quite a bit. Yes, I am still shepherding the deal through, but I am now much more focused on the strategic and commercial side because I have a fantastic team of lawyers in my team who are more than capable of doing the role that I was doing five or six years ago.
In terms of my day-to-day life and how this has changed, I’m still responsible for legal, compliance and risk, but in terms of legal oversight I have three very capable regional general counsel who take care of all of the day-to-day work within the legal function. At the board, I report on matters of legal and compliance generally but I also get asked to comment on anything related to risk. Whether these are risks inherent in our operational processes, those associated with a transaction or a risk related to dealing with investors, I tend to get drawn in to discussions and strategy.
We also spend a lot of time discussing environmental, social and corporate governance and matters of business culture. I also devote a lot of time with our risk and HR teams assessing staff conduct – this is especially important for an FCA-regulated firm like ours.
IHL: What are the main ways that regulation of financial services is likely to change in the future?
PP: What we are seeing now is that, globally, regulators have realised that, while enforcement is a useful tool and can be applied successfully in the event of rule breaches, there is nothing quite like pushing the responsibility for ensuring compliance back on the managers within the firms they regulate.
The most obvious example of this is probably The Senior Managers and Certification Regime (SM&CR) in the UK where firms are required to manage their staff in accordance with relatively proscriptive guidelines and managers are accountable for failings. The FCA’s number of reported enforcement cases has reduced recently – though they of course continue to handle the significant cases – and, while some of this could be Covid-related, in my view the reason for this is tactical as the regulator seeks to place the onus for action and accountability on the management of firms.
Certainly, we are seeing attempts in Asia to emulate the SM&CR, which shows other regions view its objectives and outcomes positively.
IHL: How do you ensure the whole company is ahead of the regulatory curve?
PP: It is at the forefront of our minds as a legal function to be forward-looking and to partner with the business as much as possible.
One of the ways we have done this is by establishing a global regulatory ‘horizon-scanner’, which gathers details on all the initiatives identified by regulators in the jurisdictions in which we operate. We then ask ourselves whether these initiatives might affect the company in any way, or be a risk to our clients.
By using the legal function to do this we achieve a couple of things. Firstly, we are adding value by assisting the business in its long-term forecasting. Secondly, we are getting on the front foot in terms of developing solutions, and partnering with the business while doing so.
IHL: What were the interesting aspects of the Liquidnet acquisition?
PP: The deal fits in with our overall market strategy which is threefold: to bring more pools of liquidity together for our clients; to look for different sorts of products beyond our usual client base; and to use technology to create cleaner and smarter ways of doing business. We identified Liquidnet as a potential asset on offer that would tick all three of these boxes in the summer of 2020. For us, it was a catalyst to pursue in order to achieve these strategic objectives.
From the perspective of getting the deal over the line, what was interesting about this transaction was that because of the pandemic we did it almost all virtually from our end. I’ve only met one person from Liquidnet physically over the course of the six-month or so period that the deal has taken to negotiate and complete, which, when I step back and think about it, is a real revelation. What it goes to show is that so much M&A work – not just the efforts of lawyers but bankers and other professionals involved – can be done via desktop. Could we have got the deal done quicker had we been face to face? Possibly, but I think the main issue is one of cultural fit; I’ve never been in a Liquidnet office because of Covid so it’s difficult to determine the culture of a firm from a distance. This is certainly an important consideration when making a deal.
All-in-all it’s been a fascinating exercise to be a part of. What we do know now is that we can do this again if we do need to. Everyone including external advisers rose to the occasion and made the process pretty seamless.
IHL: How did you adapt to the initial shock of the Covid lockdown?
PP: The standout thing for me was how our individual staff members responded to it. You can build as many plans, processes and procedures for these events as you like, but if the staff don’t participate wholeheartedly, anything on paper is pretty useless. We found our staff were extremely engaged with making the new operating model work, and were very keen to make the new technology work as well. For instance, we had a new piece of technology that allowed brokers to work from home up and running within about two weeks of the lockdown order. Everyone worked together perfectly, showing enormous amounts of resilience in the process, which was the most impressive thing about our response from my perspective.
It’s been so successful that it’s changed our disaster planning, and probably that of other financial services firms too. Previously, many companies in the City have paid for large warehouses outside of central London that have been earmarked to maintain the operation of financial markets in the event of an outage or similar disaster. Now, following Covid, the contingency plan for many firms could simply be for everyone to work from home. Everything is just as secure and can be monitored remotely. Whether regulators will accept remote working as the new fallback for disaster/contingency planning will be interesting.
IHL: What are some of your strategies when it comes to risk management?
PP: One of our main risk strategies is that we make sure that our brokers have daily credit limits when dealing with particular counterparties. Our brokers operate differently from banks; a trader in a bank might write a derivative contract that sits on the banks books for months, even until expiry, and the bank is then required to value that derivative on a daily basis. This means it has a long-term exposure and its value can fluctuate due to both micro and macro-economic events. Our brokers, on the other hand, will buy and sell products all day long but the difference compared with a bank is that our brokers do not carry positions overnight. They effectively match the buyers and sellers and in that way we aim to have a ‘flat’ risk profile following the end of the day.
As well as imposing the daily trading limits, we also have a series of committees and processes that allow us to manage risk more holistically. For example, we might look at our operational risk – and we’ll also look at macroeconomic risks, Brexit being a good example of the latter. We also introduced a risk framework across the firm globally last year, which allows staff to log any potential problem into a management tool that allows us to evaluate and manage future risks.
IHL: Has Brexit affected you so far?
PP: Financial services were excluded from the free trade agreement announced on Christmas eve, and therefore the passport that had historically been available to UK firms to access the European Markets was not available to UK firms with effect from 1 January 2021.
This has meant that many firms in the sector, including ourselves, have had to default to a number of different options to continue to do business.
We’ve set up a European entity that can face European clients, and we’ve also relocated staff to Europe and have adjusted workflows to embrace the current ‘patchwork quilt’ of EU regulation that we are now faced with. Overall, the firm has responded well to the disappointment of financial services not being included in the free trade agreement.
IHL: How have you seen the role of the in-house lawyer change during the course of your career, and where is it going next?
PP: The days of the GC who is restricted to advising the board or management on a law or regulation applicable to a particular business or sector are long gone.
The current GC model – and the one I encourage my team to aspire to – is to be much more of a risk adviser to management and I think that’s the future. By that, I mean leveraging your legal risk training and experience in order to figure out what really matters to management and then help them navigate and find solutions.
Lawyers are very good at absorbing a lot of information quickly and figuring out what to focus on, and while I think you can successfully use those skills in a multitude of scenarios, I think they are most usefully deployed as part of a ‘risk partner’ role. The most successful in-house lawyers in my team are not contacted by business leaders on purely legal issues, but around commercial ones.
That’s where the future lies for in-house lawyers. It’s about harnessing what our legal training gives us; in my opinion, we think in a unique way compared to our colleagues.