FCA consults on the regulation of GCs

18 October 2016

The FCA has outlined in a discussion paper its views about the extent to which GCs should come within its regulatory remit.

On 29 January 2016 we reported that the FCA had identified uncertainty about whether the GC/Head of Legal function should fall within the scope of the Senior Managers Regime (SMR).  The FCA has now published a discussion paper to open its consultation on the issue, in which it invites discussion about issues including how to handle legal professional privilege and whether its current proposal to regulate most of a GCs role should be modified. 

Whilst the FCA's open consultation only deals with GCs/Heads of Legal Functions at deposit takers and certain other designated investment firms, it has much wider implications across financial services.  Should the FCA decide that these roles should come within the SMR, then this will likely apply to all regulated financial services firms when the SMR is rolled out across the sector in 2018.  

The FCA consultation (which closes in January) states that its current position (which remains applicable now) is that all legal function activity - contracts, training, records management, people supervision etc is, "of course" under its regulation.  The one exception that the FCA identifies is those elements of advice given by in-house lawyers that might attract legal professional privilege (or what s.348 of FSMA calls 'protected items').  In essence this means that the FCA believes that it regulates much of the ordinary work of a GC (such as the giving of commercial and general business advice, conducting commercial negotiations, drafting corporate policies and taking board minutes).

The FCA noted that, whilst feedback had been received from respondents who were unsure (and indeed concerned) as to whether a Senior Manager would need to be appointed to have overall responsibility for a firm's legal function, no feedback was given about two other significant aspects of the new regime.  The FCA implied that it had taken this lack of feedback to be agreement for the propositions that: 1) all employees within a legal function (except ancillary staff) are subject to the Conduct Rules; and, 2) that the head of the legal function will be caught by the certification element of the new regime, even if they are not designated as a Senior Manager (and as such they would in any event be subject to similar direct personal regulation and potential sanctions).

RPC ran a pilot survey on these topics earlier this year and will now re-run the survey to see if we can provide an informed and representative view to the FCA - so please do contribute when we release it so that we can help shape the FCA's thinking.

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