Moving beyond what he calls the “tectonic changes reshaping the Baltic legal markets” — the reshuffled and new alliances that has dominated recent coverage of those markets — Latvian Cobalt Partner Lauris Liepa calls attention to the trends that are reshaping the region’s banking sector as well.
The first trend, according to Liepa, is the consolidation of banks in the region, including this summer’s blockbuster combination of DNB Bank and Nordea across all three Baltic markets. The second trend is the local market regulators which, he reports, are displaying an increasingly scrupulous (“and very very tough”) attitude towards the banks in the region. In Lauris’s mind, the two phenomena are linked.
Starting with the second trend first, Liepa explains that Latvian market regulators “have imposed sanctions on several banks, ranging from public reprimand to a million euros penalty for lack of an appropriate attitude towards their risk assessment policies.” Liepa reports that “sufficient compliance with risk protections were not in place, and they were unable to convince the regulators that they were adequately prepared.”
In addition, the banks, Liepa reports, are forced to compete not only with one another, but with the new market players taking the form of alternative financial services companies. These companies — including the peer-to-peer lending, consumer financing, and money transfer institutions which he says "are popping up all over" — “are putting pressure on banks, and the smaller banks are finding themselves effectively sidelined.” In Liepa’s mind this is a necessary development, as it is beneficial for consumers and over time should make the banks more flexible, thereby strengthening the market. In addition, while of course there is competition between the banks and the alternative market players, Liepa reports that “it is not really black and white,” pointing out that there is also a fair amount of collaboration and learning from each side.
As a result, in Liepa's mind, all these trends — the development of FinTech industry, the increased scrutiny of the banks, and their consolidation — reflect “that the markets are maturing … just like the legal markets in the region.”
On the subject of legislation, Liepa reports a number of issues ongoing, saying that, “I am impressed at the speed and enthusiasm of the government in elaborating legal framework for the non-banking financial market participants, e.g. Peer-to-peer lenders. We may also see the new regulation of Startup enterprises passed by our Parliament still this year.” Liepa also refers to ongoing reform to Latvia’s insolvency regime, reflecting the “increased intent in politicians to address the country’s reputation for having a generally inefficient insolvency process, resulting in the loss of business.” A functioning and effective system for setting up companies and efficiently arranging their bankruptcies is a sign of a healthy economy, Liepa asserts, and though the improvement of the country’s regime takes place in stops and starts, he laughs, “it is developing, and we’re learning from our mistakes."
Finally, Liepa reports that there has been “strong growth this year from the perspective of the legal services providers” in Latvia. He describes that as “sort of surprising,” as many clients are reporting less successful financial results — Liepa refers to symptoms of a “mild recession" — but says that so many law firms are diversified that they become “somewhat immune to risks that affect commercial players.”
In “The Buzz” we interview experts on the legal industry living and working in Central and Eastern Europe to find out what’s happening in the region and what legislative/professional/cultural trends and developments they’re following closely.