Oversight regulator “very concerned” about ethics of commercial lawyers

Post Office: Scandal has put spotlight on role of lawyers

The Legal Services Board (LSB) has expressed “very significant concerns” about the professional ethics of in-house and commercial lawyers in the wake of a series of incidents which raised “difficult ethical questions”, including the Post Office scandal.

The oversight regulator said it was difficult to find evidence on the scale of ethical failures, but it was concerned that “certain parts of the sector may not consider themselves to be under the regulatory and supervisory spotlight”.

In a paper for yesterday’s meeting of its full board, the LSB said “a range of matters” had contributed to a “broader concern about whether regulation has adapted to the growth of the legal sector as a leading global jurisdiction”.

These included the role of lawyers in the Post Office scandal, governance failures at the Royal Institute of Chartered Surveyors for which a City law firm was in part blamed, the use of non-disclosure agreements to cover up misconduct in the workplace, the government’s call for evidence on strategic lawsuits against public participation (SLAPPs), and weaknesses in anti-money laundering (AML) controls.

Such matters were “indicative of the difficult ethical questions that in-house lawyers, large and mid-tier firms in particular” might face in balancing tensions between professional obligations and commercial pressures.

“Although there is an argument that only a minority of lawyers actively breach these boundaries, it is equally fair to say that it is difficult to point to evidence as to the actual scale of the problem.”

However, the LSB said that taken together the series of examples gave rise to “very significant concerns about how embedded professional ethics are in practice” and the risk to public trust and confidence.

“Overall, this contributes to a concern that certain parts of the sector may not consider themselves to be under the regulatory and supervisory spotlight.

“This is exacerbated by findings from the ongoing competence project which show that regulators are not in possession of evidence on how frequently ethical competence issues arise.”

The LSB said it would develop its thinking on professional ethics as part of its work on the role of regulation in supporting the rule of law, as set out in this year’s business plan.

When the scope of the work was decided, wider concerns about “the extent to which ethical considerations are driving legal practice” would be included.

Meanwhile, LSB said it had written to legal regulators following a roundtable on financial crime and UK sanctions.

They were asked in particular to avoid over-reliance on AML controls to mitigate risks related to sanctions and “fully grasp the breadth of the UK nexus rather than focussing on Russian business addresses”.

In response, “almost all regulators” agreed that they had a role in ensuring that the sector did not “act as an enabler” of financial crime or sanctions breaches. Two supported the introduction of a new regulatory objective “to put this beyond doubt”.

However, despite “some meaningful and pro-active engagement” by some regulators, “the response from others has been less so”. The LSB said it expected all regulators to produce risk assessments and address those risks.

“Over the coming weeks we intend to work more closely with individual regulators to ensure that they take steps that adequately address our central expectations.”

The oversight regulator said it would continue to collaborate with government and the regulators “to secure information sharing and broader powers (such as greater fining powers)”.

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