In-house lawyers could face a conflict of interest with their employers if they are included in the Financial Conduct Authority’s reporting and accountability regime, the Law Society has warned.

Responding to a discussion paper Overall responsibility and the legal function, the Law Society said the legal function should not be incorporated into the scheme, which was set up to make senior figures personally accountable for malpractice. The resulting conflict of interest between in-house lawyers and their employers could inhibit their ability to do their job effectively.

The FCA’s discussion paper, published in September, aims to clarify how and why the legal function is currently captured under the Senior Managers and Certification Regime, which came into force in March. 

The rules aim to enhance a culture of individual responsibility and accountability within firms.

If things go wrong, the regime will allow senior managers to be held to account where they are at fault for misconduct that falls within their area of responsibility.

According to the FCA, current rules require a senior manager to have overall responsibility for every activity, including the legal function.

Catherine Dixon, Law Society chief executive, said: ‘Tensions could arise where demands of compliance with the regime collide with their role as legal adviser to the organisation they serve.

‘It could result in the organisation not getting the expert in-house legal advice they need – which is not in the interests of the organisation or the regulatory authority conducting any investigation as it could result in the organisation not doing the right thing or in delays whilst external advice is sought.’

Dixon said it could also add to the regulatory burden because solicitors will be regulated by both the FCA and the Solicitors Regulation Authority, causing duplication and higher costs of doing business.

Including the legal team in the regime could erode legal professional privilege by requiring the in-house team to disclose sensitive and confidential legal advice to third parties.

Dixon continued: ‘It is important that LPP is not compromised and that our justice system is not undermined by the unintended consequences of regulatory change.’

The FCA is accepting comments on the discussion paper until 9 January.