Canadian Lawyer InHouse

Industry Spotlight Basel era' III: The 'golden for lawyers? Deluged by a 'tsunami' of regulations designed to strengthen global financial institutions, in-house counsel have a golden opportunity to demonstrate their value in a world focused on compliance. By David Gambrill If crisis breeds new opportunity, the future of in-house lawyers at banks and other financial services institutions appears to be bright following all of the regulatory activity to come out of the global financial meltdown five years ago. The roles, responsibilities, and reputations of Canadian lawyers, as well as the people trained as lawyers in corporate compliance and risk management departments across the country, have increased in the aftermath of the global credit crisis, observes Jeffrey Graham, a partner practising in the Toronto office of Borden Ladner Gervais LLP. "The recognition of the important role lawyers play in terms of supporting their institutions, in my view, has increased," Graham says. "It would be an exciting opportunity to be working inside these financial institutions that are faced with the need to develop and implement this changing regulatory environment. Lawyers should feel good about their roles inside these institutions." The basics of Basel III One area lawyers have been engaged in of late is Basel III — part of a larger global framework developed since the late 1980s around capital adequacy. Discussions among central bankers from around the world led to Basel I, which established minimum requirements for capital in 1988. Basel II, initially published in 2004, included a series of recommendations on banking laws and regulations. The bulk of the changes in Basel III, including new rules around liquidity and systemic risk, are a product of the Basel Committee on Banking Supervision. Under the direction of the G20, the Financial Stability Board sets policy direction and the Basel Committee turns that direction into regulation. "Basel III is mostly about improving the quantity and quality of capital," says Peter Hamilton, a partner in the Toronto office of Stikeman Elliott LLP. "A lot of the deep thinking around how you deal with particular assets and so on was done in Basel II and Basel 2.5. Basel III is 80 per cent about saying, 'We've counted our fingers. We've counted our toes, and this is what our suggested assets are.'" Basel III has increased the amount of capital Canadian banks have to hold by 2019, says Marion Wrobel, vice president of policy and operations at the Canadian Bankers Association. Banks will be required to hold 10.5 per cent total capital. And to enhance its quality, seven per cent out of that total 10.5 per cent has to be capital called Common Equity — Tier I. "That is the strongest form of capital," says Wrobel. "For example, that would be retained earnings. That would be when you issue equity shares. That level of common equity is much higher than it was in the past." The Basel framework also introduced a new liquidity standard called a Liquidity Coverage Ratio, which measures an institution's ability to access cash in times of stress. The LCR is a test to ensure an organization can manage some degree of stress over a 30-day period, or a one-year period. Basel III relaxed some of its previous limitations about what assets might be considered "liquid," as Goodman's LLP noted in a recent firm update. Tangled webs we weave Lawyers observe a host of other regulations around disclosure requirements and corporate governance have been introduced that are not part of the Basel framework. Considering all of these new initiatives as a whole, Wrobel describes a w w w. c a n a d i a n law y er m a g . c o m / i n h o u s E october 2013 • 33

• Cover