In-house lawyers warned over FCA privilege dilemma

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1 February 2016


In-house lawyers may not be able to use information to defend themselves

In-house lawyers may not be able to use information to defend themselves

Legal privilege could cause in-house lawyers a major problem if the Financial Conduct Authority (FCA) does bring them within its new accountability regime for senior managers, they have been warned.

Last week the FCA announced it would consult on whether general counsel and other in-house lawyers in banks, building societies and credit unions fall within the regime, due to start on 7 March this year.

It means that individuals with ‘overall responsibility’ for certain activities must be ‘pre-approved’ by the FCA to carry out ‘senior management functions’.

Marian Bloodworth, a partner at City law firm Kemp Little, said: “The consequences of being a senior manager are serious and this additional level of accountability for lawyers who are already subject to existing legal professional obligations, is not something to be undertaken lightly.

“As with other senior managers, assuming this level of responsibility will require senior lawyers to agree a statement of responsibilities and also in turn, amendments to their existing terms and conditions of employment.”

She said that by far “the most significant issue”, however, was that of legal privilege, noting that the FCA acknowledged this risk should there be any situation where lawyers could be required or pressurised into disclosing privileged information.

“Although the senior manager presumption of responsibility – the so called ‘reverse burden of proof’ – is set to be removed from the regime, it will be replaced by a statutory duty of responsibility. As a result, in the event of any breach or suspected breach of the firm’s obligations, the regulators will want to know what actions were taken by senior managers to deal with or foresee the circumstances leading to the breach.

“To prove that they took reasonable steps in the circumstance, other senior managers may wish to disclose evidence, in the form of emails, documents, minutes of board meetings etc to support their position. The ability for senior lawyers to do so will be much more limited, particularly where their reasonable steps may well consist of the provision of legal advice – which would not be disclosable.

“The law on privilege is complex and firms will be reluctant to enter into debates with the regulator as to whether privilege applies to communications from their senior legal counsel. Equally however, they will be keen to rebut any suggestion that senior counsel have not conducted themselves appropriately given their senior position.

“This highlights the difficulty of including lawyers within the regime, and will no doubt form a key part of many consultation responses.”



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