A Response to the Financial Conduct Authority’s Consultation Paper CP19/4

Abstract

In this paper we disagree with the proposal in the Financial Conduct Authority’s consultation paper CP19/4 to exclude the head of legal of regulated firms from the Senior Manager and Certification Regime (“SM&CR”). We argue that there are benefits to inclusion; from the perspective of regulated firms, their legal function, and their head of legal. We argue that, most importantly, there is a public interest benefit to inclusion: head of legal accountability under the SM&CR can contribute to the promotion of effective risk management and the prevention of wrongdoing within regulated firms. To support this conclusion, we argue that that:

- the inclusion of the Head of Legal is consistent with the purposes and objectives of the SM&CR, considering the scale, importance and role of the legal function within firms;

- to exclude the Head of Legal may have negative implications for the Head of Legal, the legal function, and the resilience of the firm itself; in particular, it may serve to undermine the authority and independence of the Head of Legal and the legal function within the firm;

- CP19/4 does not consider the professional duties of in-house lawyers as solicitors; these professional duties support and complement the core regulatory duties of regulated firms;

- certain of the grounds for exclusion which are cited in CP19/4 are either based on unsupported claims or conflict with better evidence drawn from research. To take one example, the assertion that the dominant function of lawyers within regulated firms is as providers of narrow legal advice which does not constitute an “activity” for the purposes of SM&CR understates and misrepresents both the importance of legal advice to regulated firms, the far broader range of activities undertaken by lawyers in operationalising legal work, and the broad and operationally important role played by the Head of Legal and the legal function as a ‘line of defence’ in regulated firms; and

- whilst we acknowledge that certain of the grounds for exclusion which are cited in CP 19/4 may have merit, these grounds for exclusion should be balanced against the benefits of inclusion. We consider that some of the residual concerns, for example, as to the impact of inclusion on the availability of legal professional privilege, or the protection of confidential information, are overstated.

Keywords: Senior Manager Regime, Lawyers, Legal Practice, In-house lawyer, Solicitor Duties, Legal Professional Privilege