02 February 2016 - Post by:Sarah Hitchins
‘Do I need to be a Senior Manager?’ asked the General Counsel. To date, most banks (and indeed the regulators) have responded with ‘no’. However, last week, the FCA put out a press release on its website which may have caused banks to think again about whether their General Counsel – or the person at the helm of their legal function – needs to be a Senior Manager.
The existing position
There is no specific Senior Manager Function or FCA/PRA Prescribed Responsibility that directly concerns responsibility for a bank’s legal function. Likewise, Legal does not feature on the (non-exhaustive) list of possible additional areas of responsibility set by the regulators (SYSC 4, Annex 1G and appended to each Statement of Responsibilities).
As a result, many banks had got comfortable with not including their General Counsel or Heads of Legal on their lists of proposed Senior Managers. However, that is not to say that banks in this position considered that their legal functions were captain-less ships with no one ‘in charge’.
The FCA’s reaction
The FCA’s press release acknowledges some ‘confusion’ in the industry as to whether a General Counsel or Head of Legal needs to be a Senior Manager under the new regime. The press release also appears to recognise that the FCA’s position on this subject has not been clear and that its ‘communications have not necessarily been sufficient to ensure that firms have full clarity’.
The FCA’s rationale for its mixed messages on this topic appear to be as follows. When saying to the industry that General Counsel and Heads of Legal did not need to be Senior Managers, the FCA appears to have been focusing on the role of an individual holding this position in terms of ‘providing legal advice to a firm’s Board’. According to its press release, the FCA is now turning its attention to ‘individuals having overall responsibility for a firm’s legal function’.
The FCA has stated that it will produce (yet another) consultation paper which will specifically deal with the point of whether a General Counsel or Head of Legal needs to be a Senior Manager. However, this consultation process will not be completed in time for grandfathering (8 February 2016) or implementation (7 March 2016).
This consultation paper will raise some interesting issues. For example, would Senior Manager Conduct Rule 4 (the obligation to disclose information to the FCA and the PRA) require a General Counsel or Head of Legal to disclose privileged information? We think the likely answer to this is ‘no’ given the protections afforded by section 413 Financial Services and Markets Act 2000. Nonetheless, it seems that this kind of issue will be aired when the FCA publishes its consultation paper.
We will be discussing this development in more detail at our seminar on the key legal and compliance challenges associated with the new Senior Managers and Certification Regime, which is taking place on 3 February 2016 at our London offices. Spaces at this seminar can be reserved by emailing BFRevents@allenovery.com.
But in the meantime, what should firms be doing?
The good news is that it appears that the FCA is not expecting banks to make any last-minute changes to their Senior Managers line-up – it has said: ‘any firm that has sought to make a decision in good faith about whether or not the individual [in charge of the legal function] requires approval, on the basis of the published rules and our other communications, should not need not change their approach in the interim’.
However, on the run-up to implementation, firms should make sure that:
- They are clear internally as to which prospective Senior Manager will have overall responsibility for their legal function.
- Their Management Responsibilities Map includes their legal function and also clearly shows who it reports to.