by Karolos Seeger and  Andrew H.W. Lee

In a long-awaited but widely-expected development, the UK Financial Conduct Authority (“FCA”) has issued a new consultation paper[1] proposing that Heads of Legal do not need to be designated as Senior Managers under the Senior Managers Regime (“SMR”). Ever since the introduction of SMR in 2016, the FCA has delayed formally confirming whether heads of legal should be allocated the SMF18 role (Other Overall Responsibility Function).

The FCA came to its position in light of the potential difficulties created by legal professional privilege. A fundamental principle of the SMR is that if a firm breaches a FCA requirement, the Senior Manager responsible for that area can be held accountable if they did not take reasonable steps to prevent the breach from occurring (the so-called ‘Duty of Responsibility’). This could lead to a conflict of interest in which a Head of Legal wishes the firm to waive privilege to help him or her avoid personal liability, while being professionally obliged to advise the firm not to waive privilege where this is not otherwise beneficial for the firm. The FCA also explained that privilege would often restrict it from exercising its usual supervisory processes regarding Senior Managers to obtain documents and information from Heads of Legal, leaving little benefit in requiring them to be Senior Managers. Continue reading →