On 28 September 2016, the FCA published a Discussion Paper entitled “Overall responsibility and the legal function” (DP16/4). The Discussion Paper sets out the FCA’s current views on how and why the legal function is captured under the SMR, and to invite views on whether the legal function should continue to be included within the SMR.
The FCA considers that its current rules require that the person responsible for the management of the legal function be designated as a senior manager, giving rise to additional responsibilities such as the STATUTORY duty of responsibility.
This raises a number of concerns, summarised in the Discussion Paper, arising from the tension between the responsibilities of the head of the legal function as a lawyer and a bank’s right to independent and impartial advice on the one hand, and the duties the SMR imposes on senior managers on the other. In particular, there are concerns that the head of the legal function:
• may need to rely on privileged material in order to demonstrate that he or she took reasonable steps in the course of providing advice, compromising legal professional privilege. From the individual’s perspective, this raises the concern that his or her ability to rely on that material may depend on the willingness of the firm to waive privilege (as privilege will belong to the firm);
• may face conflicting professional obligations: for example, a lawyer’s duty to act in the best interests of his or her client may require them to give advice to act contrary to the views of a regulator, and a lawyer’s duty of confidentiality may be undermined by a disclosure obligation owed to a regulator;
• will face more onerous duties as a result of being subject to the Senior Manager Conduct Rules (the SMCR) (all members of the legal function, apart from ancillary staff, are subject to the Conduct Rules, and the head of the legal function will be caught by the Certification Regime regardless of whether or not they are a senior manager).
The Discussion Paper also sets out FCA arguments as to why the head of the legal function should be kept within the ambit of the SMR. For example:
• other statutory and regulatory provisions protect legal professional privilege; and
• it may be argued that the approaches taken by the FCA and the SRA are consistent, given similarities between the content of their rules.
Submissions on (i) the FCA’s analysis of the arguments for and against inclusion of the management of the legal function in the SMR and (ii) whether there should be a requirement to allocate overall responsibility for the management of the legal function to a senior manager are sought by 9 January 2017.