Growing challenges in the legal space
07 March 2023
Lawyers have become a central part of Luxembourg’s financial ecosystem, playing a crucial role in advising financial firms and helping corporates and private clients to structure a variety of financial vehicles and instruments. Large international firms now operate within the Grand Duchy, alongside those that were born here. All of them have built out the expertise of their teams for the specific features that make Luxembourg’s financial centre a success: multilingualism, cross-border expertise, fund management and administration, investment structuring, asset management – both alternatives and UCITS, and increasingly, the mastery of new European and international regulations that have come into force since the 2008 crisis.
Pit Reckinger is Chairman of the Luxembourg Bar and a partner at Elvinger Hoss Prussen and has been at the heart of Luxembourg’s financial centre for over 30 years. He sat down with us to discuss the major changes Luxembourg’s legal space has seen in recent years.
LFF: The world of finance has changed drastically in the last two decades. What have the major challenges for business law firms been over this period?
Perhaps the biggest challenge for the entire legal profession has been the proliferation of legal and regulatory texts. As laws become more numerous, with texts becoming increasingly voluminous and complicated, it has undoubtedly impacted the activity of providing legal advice to clients. Additionally, this proliferation has also affected the rules that impact the operation of the legal profession, be it in terms of compliance, anti-money laundering rules, or in terms of tax matters via the DAC6 Directive for example.
Growth in the number of business law firms operating in Luxembourg has been one of the most significant changes over the last forty years.
LFF: How has the legal sector adapted to help its clients given this regulatory influx following the crisis?
Reckinger: Two trends have emerged from this: specialisation and an increase in firm size. To meet the demands of increasingly specialised subjects, firms have had to recruit and train a variety of experts. Since 2008, fortunately, the market has been buoyant and candidates from different backgrounds have joined firms in Luxembourg. Over this period, the number of lawyers in the Luxembourg Bar has more than tripled, with over 3,250 lawyers now registered. A growing proportion of which are in business law firms.
Growth in the number of business law firms operating in Luxembourg has been one of the most significant changes over the last forty years. In the 1980s, the number of firms could be counted on one hand, but as the financial sector has grown so too have the number of law firms. Today, the country’s eight largest law firms account for a third of the Bar, more than 1,000 lawyers. They are all business firms. Of the other two thirds, the majority work for the financial sector, but in smaller firms.
LFF: So, competition between firms has become more intense?
Absolutely. Many foreign firms, especially with an international network, are now operating in Luxembourg and have increased competition. This, of course, has a number of positive effects. Over the last twenty years, services have become more sophisticated (given the use of multi-specialist teams using new technology) and the speed at which these services are delivered has increased. However, pressure is mounting, particularly in terms of recruitment as an increasing number of firms tap into the recruitment pool. In this globalised environment, firms are also investing heavily into technology to meet client needs. Additionally, cost concerns are rising to the fore for many clients and, naturally, price competition has increased as well.
The automation that is slowly but surely being integrated into the legal sector is largely linked to the two factors mentioned before, namely speed and cost control.
LFF: You mention the firms increasingly investing into technology. How has LegalTech transformed the legal practice?
The automation that is slowly but surely being integrated into the legal sector is largely linked to the two factors mentioned before, namely speed and cost control. Certain documents can now be provided more rapidly, at a lower cost to the client, and with a lower risk of error. In the case of company purchases or sales, the basic legal audit can be carried out by automated tools, with the lawyer intervening to bring the required expertise. In relation to the technological evolution, lawyers have to choose which category they want to play in: to enter a race which requires significant resources, but overhauls a larger amount, or develop a different model and focus on work with a higher added value. I’m convinced that both will be able to succeed and that there is still a future for the smaller firms who focus on a differentiated model. Especially given that the relationship of trust between a lawyer and their client will continue to play an essential role.
Many foreign firms, especially with an international network, are now operating in Luxembourg and have increased competition.
LFF: Given the increasing complexity of financial matters, is the basic legal training of commercial lawyers still sufficient?
It’s clear that students who combine legal studies with accounting, economics or political science are in high demand, however many law firms continue to organise specific finance and accounting training for their staff. The Luxembourg Bar Association organises training on a wide variety of topics in collaboration with the Young Bar Association. We also impose the principle of continuous training for all lawyers. Notably, in terms of the fight against money laundering, this training is compulsory for all staff at law firms, not only the lawyers.
LFF: The scope of activities that lawyers undertake have become increasingly wider. Does this pose another challenge for the profession?
It’s become more difficult to clearly define what falls within a lawyer’s scope of services in Luxembourg. While the sector is regulated and enjoys considerable credibility, we are seeing an increasing number of new players are encroaching on the field.
At the Bar Association, we are careful to maintain a strict separation between legal advice, which is governed by the law as it pertains to the legal profession and has specific attributes such as professional secrecy, and commercial activities including domiciliation or the provision of services to companies. Some of these ancillary activities are carried out by lawyers, but within a separate company structure.