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Freshfields Risk & Compliance

| 2 minutes read

FCA proposes excluding Heads of Legal from requirement to be a Senior Manager

The FCA has published a consultation paper on the Senior Managers & Certification Regime (SMCR) clarifying the application of the SMCR to the Legal Function. The FCA is proposing to exclude Heads of Legal from the requirement to be a Senior Manager, in a decision likely to be welcomed across much of the financial services industry.

A key reason behind the FCA’s decision is the tension between certain duties of Senior Managers under the SMCR and legal professional privilege. Under FSMA, the FCA has no right to require firms or individuals to disclose privileged material in enforcement investigations. However, under the SMCR, every Senior Manager is subject to a Duty of Responsibility. If a firm breaches one of the FCA’s requirements, the Senior Manager responsible for the area in which the breach occurred could be held accountable if they did not take reasonable steps to prevent the breach from occurring. The consultation paper notes that the Duty of Responsibility could put firms under pressure to waive privilege to allow the Senior Manager performing the Head of Legal role to demonstrate they had taken reasonable steps. This creates a potential conflict of interest in that the Senior Manager may personally want to rely on legally privileged material to demonstrate reasonable steps – however that privilege belongs to the firm and the Senior Manager may professionally be obliged to advise the firm not to waive privilege.

A further reason for omitting Heads of Legal from the requirement to be a Senior Manager is to preserve the independence of the legal function. The consultation paper notes that personal liability may affect lawyers’ judgement – making legal teams more conservative and less likely pro-actively to offer advice. Further, the requirement under Senior Manager Conduct Rule 4 to notify the FCA of anything of which it may reasonably require notice could create a conflict with the duty of confidentiality and the SRA Principle 4 obligation to act in the best interests of the client.

The FCA notes, however, that in-house lawyers will already be subject to the Individual Conduct Rules and that Heads of Legal will also fall under the Certification Regime as either a Material Risk Taker or Significant Management Function. The FCA also notes that it is not proposing to exclude anyone who is a lawyer from performing a Senior Management Function. So should the Head of Legal perform another Senior Management Function, for example; the Chief Operations Officer or Head of Compliance, they will still have responsibility as a Senior Manager for that additional role. Firms will be expected to clearly outline the responsibilities for each role in the individual’s Statement of Responsibilities.


uk, regulatory, governance, financial services, culture and accountability