Legal and professional privilege can on occasion protect firms from the necessity of disclosing confidential communications, and/or material evidencing such communications, that take place between clients and/or their lawyers and in some circumstance also between those lawyers and third parties.
The ability to assert legal and professional privilege is a longstanding client right in English law and it is something which firms and their lawyers – especially those who are new to regulation – toy with where they are considering contentious issues that they feel uncomfortable about disclosing to financial services regulators. They hope that by wrapping themselves in the cloak of legal and professional privilege that they can maintain a degree of confidentiality and avoid uncomfortable questions. This may seem like a sensible tactic but is it one that works in the long-term?
The Law Society is currently coming to the end of a consultation on a draft practice note for this, which helpfully tries to clarify the kinds of situation in which it can be most appropriately used. You can read more about this at:
Where the assertion of privilege becomes problematic is where it comes into conflict with key regulatory Principles such as being open and honest with the regulator. The PRA and FCA will often give firms to understand that they expect privilege to be waived in relation to regulatory matters and as such the use of privilege becomes contentious. It is to address these sorts of circumstance that the Law Society looks to have drafted this practice note to remind lawyers of the scope rationale and potential use of legal and professional privilege when dealing with the regulators.
TCF are not lawyers but in working with firms and their lawyers – both in-house and external – we sometimes find ourselves in or at the margins conversations about deploying privilege.
This debate is normally very much between the firm and its lawyers but we observe as regulatory specialists that for a firm to recourse to privilege calls into question, for the firm, the extent to which it will be seen to be open and honest with the regulator. Put another way, using legal privilege is an option, but is it ever a good tactic to deploy it as it can seriously damage a firm’s relationship with their regulator.
Our observation is that the PRA and FCA will respect privilege provided the firm can articulate why it is necessary to maintain it and provided they feel the firm is dealing squarely with them. The problems tend to start when the regulator feels it is being used to hide something which the firm feels is too awkward to disclose. There do seem to be some circumstances under which it is plausible for a firm to assert privilege and not do lasting damage to their regulatory relationship – for example a firm may wish to keep the inner workings of an internal investigation cloaked under privilege but agree to share the outcome with the regulator.
Firms operate under the constant regulatory pressure to be open and it can be difficult to sustain privilege in the face of the regulator’s expectations that the use of privilege will be limited to the absolutely essential.
So it’s against this background where firms and lawyers understandably feel they are put under pressure to waive this right of confidentiality, that the Law Society has drafted its guidance.
The key point we believe is that privilege should never be asserted or waived blithely. It requires proper legal advice and in some instances regulatory advice about the impact on the relationship with the regulator in the specific circumstances of the firm.
Using it carefully is at the base of the Law Society’s note – but it is also a foundation for maintaining a good relationship with the PRA and FCA.