FCA is to consult over whether the head of legal role falls within the Senior Managers’ Regime

1 February 2016

The FCA this week acknowledged that there is considerable uncertainty as to whether an individual in charge of a firm’s legal function requires approval under the Senior Managers’ Regime.  In order to clarify its position on this, it intends to consult.  It has, however, provided reassurance to firms during the consultation process:  firms which have sought to make decisions in good faith as to whether or not approval is needed will not need to change their approach, pending the outcome of the consultation.

When the FCA published its rules on the new accountability framework, in July 2015, it highlighted that firms had to identify individuals who had ‘overall responsibility’ for activities, functions or areas of business:  such individuals were to be pre-approved for Senior Management Functions (SMFs).  Someone with ‘overall responsibility’ was described as the person who has ‘ultimate responsibility, under the governing body, for managing or supervising a function; with direct responsibility for reporting to the governing body, and putting matters for decision to it’.  On the face of it, this could have included an individual operating in a General Counsel or head of legal role for a firm, depending upon the extent of their duties and responsibilities.

Since publishing those rules the FCA has indicated that it has faced many questions due to uncertainty over how to deal with a firm’s legal function.  Although it had not been included originally in the FCA’s indicative list of business activities, it was envisaged that many firms would need to identify the role as an overall responsibility SMF when allocating senior management responsibilities, if those responsibilities were not covered by an SMF elsewhere in the firm.

The FCA has acknowledged that its communications and thinking on this subject have not been clear.  It also understands the tension between a General Counsel, on the one hand, providing privileged advice, and, on the other hand, having a responsibility to disclose information to the FCA due to their regulated role.

A decision has therefore been taken to consult on this issue and obtain views on the practical and legal implications of the head of legal role falling within the Senior Managers’ Regime.  However, as the March deadline for the implementation of the regime looms, the FCA has confirmed that, pending the outcome of the consultation, firms which have considered this issue and have made a decision in good faith, should continue with their current approach.  When the consultation is complete, further guidance will be provided by the FCA in the hope that firms will have clarity over the approach they must take.

The consultation will be published in due course; the outcome of it will be interesting, given the perceived tensions between a lawyer’s responsibility to their client, but also potentially to the FCA if the lawyer falls to be accountable to it under the Senior Managers’ Regime.

Further information

For further information, please contact Julie Matheson. You may also wish to see our Senior Managers and Certification Regime timeline.

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