UK regulator plans to exclude top lawyers from new accountability regime
30 Jan 2019

Bosses in the legal departments of financial firms will not fall under the United Kingdom’s new rules aimed at instilling individual accountability for compliance and other failures, according to plans published by the financial services regulator.

The Financial Conduct Authority (FCA) has published its feedback on an earlier consultation into the application of its senior managers and certification regime (SM&CR) to the legal function.

It said it has proposed to exclude the Head of Legal from the requirement to be approved as a Senior Manager, saying as so much of the Head of Legal’s work relates to legal advice, the laws of legal privilege may restrict it from using its powers over senior managers.

As a result, the benefits that normally result from applying the SMR will be ‘substantially reduced’ so that any remaining benefits are not sufficient to justify applying it, the FCA explained.

“Almost all respondents recognised that in-house lawyers would already be subject to the Individual Conduct Rules. The Head of Legal will also fall under the Certification Regime as either a Material Risk Taker or Significant Management Function,” the published FCA document read.

“It is important to note that we are proposing to remove the requirement for the Head of Legal to be a Senior Manager; we are not proposing to exclude anyone who is a lawyer from performing a Senior Management Function.

“This means that there may be cases where the Head of Legal performs another Senior Management Function, for example; the Chief Operations Officer or Head of Compliance.”

“In these instances, the Head of Legal will still have responsibility as a Senior Manager for their additional role. Firms will be expected to clearly outline the responsibilities for each role in the individual’s Statement of Responsibilities,” the watchdog said.

The Law Society welcomed the development.

“We’re delighted that the FCA agrees with the Law Society that general counsels should not be included in the SMR. This will ensure lawyers remain free to provide full and frank advice to their employer without the risk of a conflict of interest emerging,” Law Society vice president Simon Davis said.

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