The City watchdog has been warned that its proposals to include the legal function of banks and other financial institutions in its accountability regime for top executives could create a climate of fear around legal advice, including reluctance from overseas lawyers to consult with UK colleagues.
The Association of Corporate Counsel, an international body with more than 40,000 members, has told the Financial Conduct Authority that in-house counsel at a bank’s international headquarters may be reluctant to consult with in-house counsel in the UK knowing that their colleagues are being supervised by the FCA.
The watchdog’s consultation on including the legal function in its senior managers regime (SMR), which came into force last year, closed on Monday. At present the regime applies to banks, building societies and credit unions. It will be extended to all regulated financial services firms from 2018.
The association noted that in-house lawyers are already subject to regulation by the Solicitors Regulation Authority.
The ACC said: 'Some of the requirements of conduct under the SRA rules, like maintaining independent judgement and client confidentiality, and remaining free of conflicts of interest, could directly conflict with the SMR conduct rules and result in disciplinary action against solicitors subject to the SMR.’
European lawyers may also be subject to the Council of Bars and Law Societies of Europe code of conduct, the ACC said.
'If lawyers who are already regulated by legal professional bodies are also subject to SMR conduct rules, they will be put in the difficult position of serving two masters with conflicting rules.’
The regime threatens ‘free exchange’ between lawyers and business-colleague clients, the ACC warned. Employees would be less likely to seek advice not only to the GC or head of legal, but to any of the in-house legal team that reports to the head of the legal function.
Senior managers will also be significantly less likely to bring matters to the GC’s attention for fear the GC feels the information has to be disclosed, the ACC added.
The association said a lawyer’s concerns about personal liability can affect their judgement, and make them less likely to ‘proactively’ offer advice, warning that the regime would create an ‘overall climate of inhibition of legal advice’.
The FCA is expected to issue its response to the consultation by early summer.