Legal news and trends for Canadian in-house counsel and c-suite executives
Issue link: https://digital.canadianlawyermag.com/i/50884
Hugh MacKinnon, chairman and CEO at Bennett Jones LLP, says a big business needs certainty. "If you're the general counsel of a big bank, it's a complex world. You need people who are in the outside world in the trenches to be your eyes and ears. [Fish] obvi- ously needs his whole team including external counsel." In order to meet BMO's requirements, Ponder explains, some of Oslers' systems had to be adjusted to deal with the bank's risk-management needs. Risk param- eters had to be explained and client services and records management staff money laundering, bribery or corrup- tion, and the existence of real or appar- ent conflicts of interest. There are letters of engagement BMO uses with firms which specify the terms of engagement in that process. "Those are the obligations we impose on the law firms in our standard engagement terms," he says, adding BMO is not going looking for small firms to handle specific practice areas. "We tend only to engage the major Bay Street firms and national firms to do the work." And he's not interested in reluc- tance on the part of his partners. "Any We're bringing in our law fi rms as partners. . . . It's more troops. It's more resources. It brings more expertise and specialist knowledge to an area. SIMON A. FISH, BMO Financial Group should be identified as coming into play in the bank's interests, "I want the outside counsel to give me a call immediately." The learning curve has not been over- ly steep for Oslers. "It's not a huge one because we have done work for them before in the past and are aware of their processes and risk factors," says Ponder. "There's a fair bit of familiarity." Like the other large Canadian banks, had to be enlisted in order to spot risk triggers. She says the firm needs internal flags in order to discharge its obligations to the bank. "If we see it, we know it and remember to tell them. Hopefully, we're not ever calling [Fish]." MacKinnon says the formalization of the firm's involvement with BMO's in-house team is the novel and "smart" thing to do. And, he adds, the idea with which Fish approached him in the early spring of 2010 could be the way of the future for not only banks but also for other corporate entities. "It's something that's done on an ad hoc basis any- ways but formalizing it will become the norm," he says. Fish notes particular areas of con- cern are investment banking and credit or complex structured finance transac- tions. Indeed, the list of risk factors external counsel would need to address is lengthy. It includes the need for legal, tax, accounting or regulatory opinions, off-balance sheet financing, the timing of the closing of transactions, product suitability, creation or use of special- purpose vehicles, indicators of fraud, 38 • OCTOBER 2010 firm that shows reluctance or indicates some inability to take on the role, we will have reluctance to engage them," he says. It's a stand with which Ponder takes no issue. She says any time a firm is asked to do something, it's in the firm's interest to take the request seriously in order to maintain the relationship with the client. Fish says it's standard practice for his bank to maintain a strong group of professional risk manag- ers whose function it is to manage risk on an enterprise-wide basis with- in BMO's various lines of business. Further, he explains, the company's legal group has its own risk-manage- ment framework with which the bank has begun to engage outside counsel. But the idea, he says, is not to put those firms on the hook for anything but rath- er to be part of an early warning system. That is clear to Ponder. "They're not trying to shift liability to their outside service providers," she says. In engaging those firms, the bank has identified risk triggers that firms have been asked to familiarize themselves with, says Fish. If one of those triggers INHOUSE Fish says BMO has an enterprise-wide approach to the identification, measure- ment, monitoring, and management of risks faced across the organization. These risks are classified as credit and counterparty, market, liquidity and fund- ing, operational, business, model, strate- gic, reputation, and environmental risk. However, responsibility for man- aging risk rests principally with the businesses supported by the bank's enterprise risk-management group. But all corporate areas, including the legal group, provide a "second line of defence" in managing enterprise risk. Corporate audit, which monitors the efficiency and effectiveness of controls across various functions, provides a "third line of defence." Indeed, says MacKinnon, "you still rely on the people who are experts in the area — the in-house people." But when one of those engaged firms operating as part of that defence sys- tem identifies an area of risk, Fish wants to hear about it immediately. The BMO GC identifies legal risk as a subset of operational risk. BMO's legal risk-management framework encom- passes the process of identifying key legal risks to the bank, measuring expo- sures to those risks, monitoring risk exposures, and taking steps to control or mitigate risk exposures, as well as reporting to senior management and the board on these matters. And that's where outside counsel can help, Fish says. And, adds MacKinnon, for exter- nal counsel to provide what the in- house team requires, the needs of the client have to be top of mind. "The sooner potential issues are iden- tified, the better it is for everybody. Lawyers like making deals. You've got to take a deep breath and make sure the right deal gets done," MacKinnon says.