HOWZAT

"The system does seem to work," Bennett says. Panels tend to reassure member firms that they will receive regular work, which means they are more likely to be flexible in negotiating costs. Moreover, the panel firms have "known us for years," he adds. "We have tremendous relationships with them.

“The business is comfortable that they’ve got the patchwork, as they put it, of lawyers they can go to. If they’re doing a mid-market loan out of the bank’s West End corporate banking centre they don’t need to go to 'magic circle' firms and get charged 'magic circle' rates. They can go to a mid-cap firm whose rates are lower.”

Hourly billing is still the norm, but Bennett says the panels have allowed the bank to negotiate cost caps and fixed fees for a lot of work. He rejects the suggestion that HSBC would ever adopt a single-firm, flat-fee model such as that pioneered by Tyco and Eversheds.

“I don’t think a company that is diverse in its businesses can really do that,” he says. “To tie all our work into one big firm, even if it’s one of the big ones like Clifford Chance or Linklaters—you’re cutting off your nose to spite your face. There’d be so many exceptions. What if someone comes to me and says they want to use someone else because they’re the best employment firm, the best asset management firm? I don’t think even the biggest firms could say they’re the best in class right across the board.”

Legal profession is on the brink of fundamental change

In the first of a six-part series on the future of legal services, Richard Susskind lays down a challenge to all lawyers

A decade on: much changed, much still to unfold

In part two, Richard Susskind revisits some of the radical predictions he made about legal services 10 years ago

David Morley: the rise of the 1,000-partner law firm

Allen & Overy's managing partner forsees a 'global elite' emerging, but says other lawyers will continue to prosper

But Bennett does believe the amount of business HSBC sends out to external advisers will decrease significantly as technology improves. At present, there is no "hard and fast" rule as to how work is apportioned, he says: demands arising from the bank's retail operations, such as reviewing the terms and conditions of debit cards, are mostly handled internally; those from the investment banking operations are largely handled by outside law firms. But Bennett is keen to have his own lawyers deal with as much as possible.

“Some of the firms have criticised us and said they don’t get enough work from us,” he says. “And I say, well, I’m sorry, because we’ve got a reasonable sized law firm here—we’re the 17th firm on our panel. You’re competing against us in some areas and you won’t get the work because we’re cheaper.”

One thing that would radically increase the size of Bennett's load would be if HSBC itself began offering legal services to its retail customers.

The Legal Services Bill, which is currently awaiting Royal Assent, proposes allowing non-law firms such as banks, supermarkets or insurance companies to provide legal services—a development many believe will transform the consumer-facing end of the market.

Bennett says HSBC explored the possibility of offering conveyancing to customers who were already taking out mortgages about a year ago, but decided it was still too soon.

“I’m not saying we’ll never do it, but at the moment it’s not high on our priority list,” he says.

But he acknowledges that if other banks begin offering legal services as standard, it will be an easy decision.

“Off the top of my head, I don’t think I would be comfortable in saying we’re going to go and recruit 25 conveyancing lawyers and put them in a service centre in Birmingham,” he says. But, thinking aloud, he suggests that it could be feasible to divide the work among two or three different firms on a fixed-fee basis. "You might do it in India," he adds.

No matter what happens, Bennett believes that the evolution in legal services will be a "chipping away" rather than a revolution. "The know how and brain power for some of the more complicated deals is not going to be taken over by a computer.”

He predicts further consolidation and competition between US and UK firms in private practice, with both making further gains in each other's territory. But he believes there will be fewer casualties than many predict.

“There will always be a need for different sizes of firm,” he says. “If you’re an AIM-listed company, you might not get such good service from the ‘magic circle’, but if you go to someone who is thirtieth in the rankings, they may treat you like God. There’s got to be horses for courses in terms of the client and lawyers matching each other.”

Nevertheless, he believes that City law firms cannot afford to be complacent. “A firm like Allen & Overy will need to decide what it wants to do and for whom, and they’re already doing that. They no longer do a domestic conveyance, for instance, because they can’t price it.

“Every industry changes. Take banking, for example. Our delivery model is now totally different than it was ten years ago. Ten years ago nobody used the internet for banking. Now something like thirty per cent of our transactions are done online. I don’t see the legal profession being any different.”

Explore Law

• Columnists

• Law Panel

• Law Reports

• Student Law

Times Recommends

• Legal school 'earned £1m by exploiting bar course'
• Axe may fall on 5,000 more City lawyers
• Prince Charles named in £81m court battle