09 August 2017 at 06:05 BST

UK financial regulator fails to provide clarity over in-house lawyers

New proposals from the UK financial regulatory have still not clarified whether corporate counsel in financial institutions will have to answer to the Financial Conduct Authority.

Krisztian Miklosy

UK general counsel are still in the dark over proposals to make them answerable to the Financial Conduct Authority (FCA) amidst fears that such a move could cause conflicts between professional and regulatory duties. The FCA's newly released proposals to extend the FCA's Senior Managers and Certification Regime (SMR) to all financial services firms did not clarify if the new regime to improve conduct and competence for financial companies would include the legal department. Such a move would open up the prospect of GCs and heads of legal at some 50,000 firms facing new responsibilities to the financial regulatory body as well as to the legal regulator.


The Association of Corporate Counsel waded into the debate at the start of the year, arguing, in a response to the FCA, that incorporating the head of the legal function into the SMR weakens law departments and negatively impacts the relationship between in-house counsel and their business clients. If general counsel are subject to the Senior Manager Conduct Rules, it would affect both the firm's right to exercise legal professional privilege and a lawyer's personal liability. ACC also states that creating a regulatory system where legal is embedded in another department raises greater risks of noncompliance with regulatory standards, according to the letter.


'Rather than sticking a round peg into a square hole by shoehorning the head of legal into the Senior Managers Regime, the FCA should recognise that a strengthened corporate legal function is in their best interests,' said Amar Sarwal, ACC vice president and chief legal strategist. 'By transforming in-house counsel into gatekeepers, the FCA undermines the very compliance goals it seeks to achieve, goals that are the raison d'etre of the in-house role.'


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