Senior in-house lawyers at financial institutions will learn later this summer whether they will become accountable to a City watchdog, the Gazette understands, as fears over legal professional privilege were raised this week.
Earlier this year the Financial Conduct Authority said it plans to consult on whether individuals in charge of a firm’s legal function in banks, building societies and credit unions need approval under its senior managers regime, which came into force on 7 March.
The watchdog is expected to published its plans in late summer.
The Gazette reported that imposing personal accountability on general counsel could lead to many quitting financial institutions. High-calibre lawyers may also decide that the personal risks attached to regulated sector GC roles are not worth taking.
This week Colin Passmore, senior partner at international firm Simmons & Simmons, highlighted concerns around privilege should general counsel be included in the regime.
Passmore told the Law Society’s in-house division conference on Wednesday that the ‘big concern here for legal departments… is whether or not the head of legal is a senior manager for the purposes of this regime and, therefore, whether in responding to enquiries from the FCA there would an expectation in certain circumstances on the GC to have to disclose privileged information in order to explain the legal department’s conduct.’
He added: ‘This does not sound right. It sounds as if this is an attempt to intrude upon privilege, which can only be done by primary legislation first of all. Secondly, it puts the GC as a senior manager in this position. It’s forcing him to waive a privilege that’s not his. It belongs to his employer – his client.’
The Law Society is doing ‘a lot of work’ with the FCA ‘in trying to avert challenges that are going to come as a result of this’, Passmore said.
Law Society chief executive Catherine Dixon said that the Society had serious concerns about the inclusion of lawyers in the senior managers regime (SMR).
'In-house legal functions risk being fundamentally compromised if they are forced to operate within the SMR, as the regime has the potential to create a conflict of interest with their employer, affecting the lawyer’s ability to provide full and frank legal advice,' she said.
'We will be responding to the FCA discussion paper on the SMR when it is published.'