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A matter of influence: FCA to consult on policing in-house lawyers under Senior Managers Regime

The Financial Conduct Authority (FCA) has launched a consultation on whether in-house lawyers need to be policed under the watchdog’s Senior Managers Regime, in an attempt to clarify uncertainties regarding the overall responsibility of an in-house legal function under FCA rules.

Last summer the FCA sought to toughen the financial regulatory landscape with a set of rules to improve individual managers’ accountability in the banking sector.

Since publishing the rules the FCA said it has ‘come to our attention that there is uncertainty as to whether an individual in charge of a firm’s legal function requires approval under our Senior Managers Regime.’

‘We recognise that at least some firms may not be in a position to make a decision, with full certainty, about whether or not they need approval for the individual in charge of their legal function.’

It added: ‘For example, when discussing this issue at events, we have sometimes talked about the activity of providing legal advice to a firm’s board – a task which would not automatically bring a general counsel within the scope of the new accountability regime. Rather we should focus attention on individuals having overall responsibility for a firm’s legal function.’

The FCA has not given a timeframe for the consultation, with a spokesperson saying it will be published ‘in due course.’

Stephenson Harwood regulatory litigation head practice Tony Woodcock welcomed the FCA’s acknowledgement it needs to clarify the issue.

He added: ‘By giving legal advice at a senior level, or providing options and advice to the board, is the lawyer participating in the decision or simply ancillary to the decision? What are the implications for legal professional privilege if a lawyer is treated as part of senior management? The FCA’s conclusions might significantly affect the way firms structure their businesses and decision-making processes. It is a very complex area.’

In other in-house regulatory developments, proposals for reform issued in October by the Bank of England are expected to lead to major overhaul of in-house legal teams, as ring-fencing reforms mean banks will need to have separate legal functions for retail banking and investment banking operations.

For more on in-house regulation, see Stephenson Harwood’s Tony Woodcock: Policing the City – where do in-house lawyers fit in?