Already a contentious issue among financial companies pledging to tackle poor working cultures, the Senior Managers Regime, which holds executives responsible for failings in financial institutions, could pose a risk of conflict to in-house lawyers, their employers and legal professional privilege, warns the Law Society.
The Financial Conduct Authority’s (FCA) regime, which took effect in March, requires firms to map out the roles of their senior managers and allocate responsibilities to them in order to make them individually accountable. It is arguable whether general counsel, given their quick ascension up the corporate hierarchy in recent years, should be held to account under the regime too.
Today (28 September) the Law Society warned there is a risk of conflict if in-house legal functions in financial services are included in the regime.
The body flagged three main issues including the potential to put the lawyer in a conflict of interest situation with their employer that could affect the lawyer’s ability to provide full and frank legal advice
It also raised ‘serious concerns’ about the erosion of legal professional privilege where in some circumstances the general counsel may, by virtue of being included in the regime, feel obliged to disclose legally privileged information. ‘This could impact on the advice given and on the ability to ensure a fair trial.’
Finally, the body said the regulatory burden on in-house solicitors is doubled, as they would have to comply with FCA regulation in addition to that of the Solicitors Regulation Authority.
While the rules currently apply to lenders and insurers, they will be extended across the financial sector by 2018.
Law Society chief executive Catherine Dixon (pictured) said: ‘The FCA’s discussion paper acknowledges problems arising from including general counsel in the Senior Managers Regime. The Law Society is clear that legal functions should not be included in the regime because it can create conflict and erode privilege. We welcome the opportunity to discuss our concerns with the FCA during their consultation.’
Macfarlanes head of financial services David Berman, who is soon to depart the firm for Quinn Emanuel Urquhart & Sullivan, told Legal Business: ‘There has been talk for some time that there’ll be no more gold plating and post-Brexit people are hoping that will mean a slightly less onerous regulatory burden. I don’t see it getting worse – the hope is it will alleviate but it won’t be light touch.’
‘There is a tension if you’re a director of a bank when you have your statutory duties which means doing the right thing by shareholders but at the same time you have regulatory responsibilities where you’re doing the right thing by your clients and customers. That can sometimes be difficult to reconcile. The way in which the regulator views this is fairly simple: if you try and prioritise clients and their interests, the profits will follow.’
Read more in the feature: ‘The end of the tunnel – litigation and regulatory challenges in financial services’