Entry of Foreign Law Firms into Malaysia – the effects on the local job market

foreign law firms in Malaysia

An interesting development in the local legal scene is the recent entry of Herbert Smith Freehills (HSF) into Malaysia as a qualified foreign law firm (QFLF) approved by the Malaysian Bar Council. With the required approval in place, HSF is expected to open its local office in Kuala Lumpur in May 2017. This would mark HSF’s ninth base in the region after establishing its presence in numerous other Asian cities including Singapore, Hong Kong, Bangkok and Jakarta. This third largest practice among international law firms in Asia has previously advised several giant Malaysian companies such as Axiata, Petronas and Sime Darby. HSF has indicated that their Malaysian-based team will be focusing on specific practice areas such as transactions, disputes, and Islamic finance.

Liberalisation of the legal services industry in Malaysia took off in 2014 following significant amendments made to the Legal Profession Act 1976. Foreign firms are now allowed to set up in Malaysia either by obtaining a QFLF licence or by entering into a joint venture with a local outfit. HSF will be the second foreign firm to open office in Malaysia under the newly-introduced QFLF licence regime, after Trowers & Hamlins filled up the first spot in 2015. Despite this being a fairly recent development, we can already see the landscape of the local legal services industry rapidly changing.

The QFLF regime was introduced primarily to support the Malaysian Government’s International Islamic Finance Centre (“MIFC”) initiative. Therefore, firms who apply for the licence are required to have expertise in the area of international Islamic finance. The other route for foreign firms to establish a presence in Malaysia is through forming an International Partnership with a local entity. Both routes would require application for licences, which will be renewable every 3 years.

In opening up our legal services market, it is evident that efforts have been taken to achieve a balance between reaping the benefits of liberalisation and protecting the growth and competitiveness of Malaysian law firms. To this end, certain ring-fencing measures have been put in place. Although QFLF firms are allowed to operate independently without being associated with any local firms, they need to ensure that at least 30% of their fee earners are Malaysians.

In cases of foreign entry through establishing an International Partnership, the Malaysian joint-venture partner must hold at least 60% of the firm’s equity and voting rights. The percentage of local lawyers working in such a firm must be 60% or more and the name of the partnership must reflect both the joint-venture partners. An example of such an association is the forged alliance between UK law firm DAC Beachcroft and local outfit Gan Partnership in 2016. In terms of practice area, both QFLFs and International Partnerships are not permitted to advise on transactions which involve solely Malaysian law. They are also restricted from practising certain areas of law, including constitutional and administrative law, conveyancing, criminal law and family law.

In the last few years, many local law firms have taken the opportunity to create a stronger regional or global presence by establishing formal links with foreign firms. The oldest exclusive tie-up for a Malaysian firm would be that of Wong & Partners becoming a member firm of Baker & McKenzie International. To cite other examples, Malaysian corporate law firm Foong & Partners joined forces with Singapore’s acclaimed Wong Partnership in 2013, whilst Christopher & Lee Ong forged a strategic alliance with Rajah & Tan in the same year. Fast-growing Rahmat Lim & Partners also chose to go down a similar path by partnering up with Singapore’s Allen & Gledhill. Meanwhile, Abdullah Chan & Co is now able to offer additional reach in Europe after tying up with UK law firm Child & Child and law firm Cotty Vivant Marchisio and Lauzeral headquartered in Paris. Another significant alliance to mention is the exclusive tie-up between Jeff Leong, Poon & Wong with China’s largest law firm, Dacheng Law Alliance which occurred in 2011. Such moves have definitely enhanced these firms’ profiles and credibility at an international level. Yet, it is noted that certain well-established corporate law firms in Malaysia, notably Skrine, Shearn Delamore and Kadir Andri & Partners, have not taken similar steps to formally link up with foreign legal entities.

It is also interesting to observe how the shift towards liberalisation would affect the job market in the Malaysian legal industry. Change is indeed inevitable and we can expect the effects to be seen and felt from many different aspects. Based on the experience of other jurisdictions, would there been an increase in the salary levels for lawyers? In post-liberalised Singapore for instance, foreign firms have been known to pay starting salaries as high as $7,000 to bright young lawyers freshly called to the Bar. With the current highest starting monthly remuneration of RM6,000 offered by Lee-Hishamuddin Alan Gledhill, would we find foreign firms paying even higher than this?

Furthermore, the exposure gained from working on international deals and high-end projects which transcend geographical boundaries would give local talents the opportunity to tap on foreign resources and expertise, paving the way for them to develop their legal skills to a greater level. Clearly, this would make them more marketable and increase their chances of getting jobs in international law firms overseas. Whether this would ultimately result in brain drain in Malaysia remains to be seen and depends on many other factors, including the local economic situation and political climate. It can perhaps be argued that with a higher salary structure in place across the board and the high quality of legal work available locally, the effects of liberalisation on the legal services industry in Malaysia has actually removed at least some of the main incentives for our lawyers to secure employment abroad.

As the saying goes, there are two sides to every coin. With the entry of foreign law firms into the local sphere, would local talents find themselves working in a more competitive and fast-paced environment?

Can we expect the already aggressive talent competition among talented lawyers to further intensify? This may be the case especially for lawyers specialising in specific practice areas such as corporate law, capital markets, projects and banking. Increasingly high expectations will likely translate into longer working hours and the quest to achieve work-life balance may be more challenging than ever.

Nonetheless, it can be argued that the way liberalisation is perceived is a matter of mindset. The stance taken by the industry seems to be that this development should be embraced by our local talents so as to not be left behind both in terms of options and opportunities. So are you ready, young lawyers?

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