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A brief overview of Financial Law

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This area of practice covers it all; from providing a loan to an individual, to complex financial deals for big companies. Here we provide you with some points that should guide you when diving deeper into this area of law.

Financial Law covers amongst others asset finance, banking, capital markets, financial services and market regulation, private funds, restructuring and insolvency.

It deals with the borrowing of money or management of financial liabilities. In bigger firms, this involves cross-border financings as well as loans to individuals or big companies. The larger the loan, the more parties are involved in order to mitigate the risk. Typically, investment banks and law firms collect a number of potential financiers, draft the terms of the financing and parties’ rights and obligations. This is called syndication and most big-ticket loans are called “Syndicated Loans”.

Lawyers’ tasks in Financial Law and financing transactions include but are not limited to the following:

  • To negotiate and document the contractual relationship between lenders and borrowers, ensure that their clients’ best legal and commercial interests are reflected in the terms of loan agreements.
  • To represent either the borrower or the lender. It is their job to ensure their clients’ interests are fully covered and protected. International deals have an additional layer of difficulty: political changes in transitional economies can render a previously sound investment risky.
  • Meet with clients, establish specific requirements and commercial context of the deal.
  • Carry out due diligence ® to verify the accuracy of information passed from the borrower to the lender, or from the company raising finance to all parties investing in the deal.
  • Negotiate with the opposite party to agree on the terms of the deal and record them accurately in the facility documentation. Lenders’ Lawyers usually produce initial documents (often a standard form) and borrowers’ lawyers try to negotiate more favourable terms for their clients. Lawyers on both sides must know when to compromise and when to hold out.
  • Assist with the structuring of complicated or ground-breaking financial models, and ensure innovative solutions comply with all relevant laws

 

 

What are the different types of Financings (loans)?

 

  • Project finance = financing of long-term infrastructure and public service projects, where the amounts borrowed to complete the project are paid back with the cash flow generated by the project.
  • Acquisition finance = loan is made to a corporate borrower or private equity sponsor to acquire another company. You might already know what a leveraged buyout (LBO) is. “Leveraged” in that regard means that the cost of the acquisition has to a large extent been financed through debt (loan).
  • Asset finance ­= Enables the purchase and operation of large assets like ships, aircraft and machinery.
  • Real estate finance = loan made to enable a borrower to acquire a property, or finance the development of land.
  • Securitization = involves transactions where the lender offloads its loan portfolio to another company.
  • Derivatives = focuses on fixing of currency rates during a transaction.
  • Debt Capital markets ­= where a borrowing entity issues bonds to investors (like taking a loan from individual investors).

 

Role of Finance lawyers in advisory and regulatory work:

 

  • Advisory financial lawyers help clients on strategic regulatory issues, such as the implementation of the Financial Services and Markets Act, the FCA rules as well as the various European laws such as AIFMD and MiFID II.
    • EU regulations impose prudential requirements for credit institutions and investment firms. They prevent market abuse, short selling, impose transparency requirements on securities financing. Their overall goal is to protect individuals from excessive risk-taking by investment firms
    • Regulatory Capital is a requirement imposed to banks by virtue of EU law. This is the amount of capital a bank or financial institution has to hold as required by its financial regulators. This is to ensure that institutions do not take on excess leverage and become insolvent

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