A lawyer who understands fintech

Arvin Abraham, partner at global law firm Goodwin’s private equity group, has made a name for himself as a lawyer who understands the fintech industry. This understanding came from his years working, not as a lawyer, but in operational and management roles at global banks, including Morgan Stanley and HSBC.

By the time he returned to private practice, he had a “wealth of knowledge about financial services that very few practitioners have because I’ve lived it for five years”, he says.

“A lot of lawyers were thinking about legal concepts from an abstract position and not really understanding how those interplay with the day-to-day on the ground,” he continues. “Not just the way staff operate, but also how an interpretation of a regulatory provision needs to make sense with the plumbing of a bank.”

In addition to his practice at Goodwin, Mr Abraham serves on the Bank of England’s Central Bank Digital Currency Engagement Forum, the C-suite body helping to advise the central bank on potential implementation of a tokenised pound, and acts as mentor on legal issues for fintech companies based at London tech hub Level39. A frequent topic many of those companies are looking at, from early stage to middle-market buyouts, is fundraising and the best way to structure their financing, he says.

Diving into the detail

In Mr Abraham’s more formal role at Goodwin, clients vary between early-stage companies, private equity sponsors and financial institutions looking to make investments. Those early-stage companies tend to have a wide range of experience, he adds, ranging from needing a lot of support to having a sophisticated founding team.

“On those deals, particularly if it’s the first proper fundraising that the company has done, you have to do a lot of hand-holding and basically walk through the nuts and bolts of how to do the deal,” says Mr Abraham. “One of the things helping them control their expenses … is to try to stick relatively closely to the British Private Equity and Venture Capital Association standard forms. If there is extensive negotiation on top of that, it makes things more cumbersome and costly.”

While Mr Abraham stresses that due diligence should be a focus for both early stage and later stage deals, when the client is more sophisticated — such as a large global bank — that focus becomes complex and intensive.

“If you’re a regulated institution, then you have a lot of other considerations to think about beyond just the direct monetary exposure, [such as] reputational and regulatory risks,” he says. “If you invest in something that later turns out to be a Wirecard-type situation, for example, where there’s fraud or malfeasance associated with it, not only are you losing money, but you run the risk of getting in trouble with your regulators.”

The level of due diligence for corporate venture and growth deals expands the legal budgets, compared with standard deals. The cost pressures on fintech start-ups, which typically pick up the legal costs for themselves and their investors, is a complicating factor. One way to mitigate that risk is to work with lawyers that are experienced in this space and understand the pressure points, says Mr Abraham.

“There’s been a whole host of other high-profile misses recently where sophisticated financial investors have invested in companies that have turned out to not have the right governance processes in place,” he adds. “I think one of the tensions in the venture industry is the dynamic between cost and time pressure and needing to fully due diligence the opportunity.”

Assets on sale

Currently, Mr Abraham is seeing a lot of distressed activity generally in the fintech space, but particularly in crypto. The turmoil in those markets allows “opportunistic players” to pick up some great assets at “bargain basement prices”, he adds.

However, the crypto and blockchain space is an area where Mr Abraham feels the future of the industry lies.

“I think blockchain and digital assets, and fintech more generally, have the potential to revolutionise financial services and payments,” he says. “It is similar to the way that the internet has revolutionised so many aspects of our lives and we’re just scratching the surface of what it can do.”

While currently the infrastructure is still developing, once it is in place there will be “wonderful things” that people can build on top of it, he adds.

Mr Abraham feels fortunate to have worked at two different banks and to understand the risks and where the pressure points are for financial services institutions. His international experience as a lawyer in both the US and the UK is also an advantage to how he works with the fintech industry.

“This broad purview of the ecosystem has been a huge value add to my deal work and I have gradually developed a reputation in this space as a lawyer who gets it,” he says.