Legal Professional Privilege ("LPP")
At a glance
It is difficult to know for sure, but the Covid19 Lockdown seems to have coincided with (perhaps even precipitated) a lot more supervisory and investigative activity by the Financial Conduct Authority (“FCA”). Clients in the regulated sector seem far likelier these days to be served with a notice under s165 FSMA 2000 – a device FCA uses to compel disclosure of just about anything the regulated firm holds (on pain of contempt of court!). Time as was, FCA would just request a relatively friendly supervision visit to the firm and collect information through the means of a follow-up report. Perhaps because firms cannot be visited in the Lockdown, the Regulator is using this power instead. And the tendency seems to be to ask for as much as could conceivably be used in a review, rather than focusing on what may actually be useful.
The question is always one of what to disclose. And if the FCA has an issue with the way an ostensibly well-run firm has conducted itself, it is likely that the firm has received legal advice and acted upon it – even if FCA takes issue with the result.
So we need to consider the matter of legal professional privilege here, to prevent the firm from being tempted to disclose material it can and should hold back.
LPP has its origins in 16th century case law, although the first (relatively) modern statement dates from the 1830 case of Greenough v Gaskell. The principle is that where a client is legally advised by his solicitor, the document that sets out that advice is subject to LPP. This means that the lawyer cannot be made to disclose it without his client’s consent. But a series of other important points follow from this:
- It is important to clarify that LPP applies to physical documents (and their electronic copies). It doesn’t apply to oral communications, telephone calls etc. But more importantly, it doesn’t apply to the advice itself.
- LPP is a right that protects from third party disclosure the written legal advice that the client firm has from its lawyer. That catches solicitors’ advice, counsels’ opinions and even internal memos from in-house lawyers. But it catches no other professional advice at all (including advice from compliance firms). The House of Lords had the opportunity to reconsider this limitation in the complex Three Riverslitigation of 15 or so years ago, but declined to do so.
- LPP is irrevocably lost if the written advice is disclosed by the client to a third party outside the lawyer/client relationship. FCA is very much such a third party. (By the way, so is another solicitor who doesn’t act for the firm.)
- LPP can be lost by inadvertent disclosure (e.g. accidentally leaving privileged material behind after a meeting, or – the curse of the modern office – forwarding it in a chain of emails so long that nobody thought to look and see what was attached).
- Once LPP is lost because of disclosure by the client, the document can no longer be withheld if a third party (e.g. FCA) claims a right to see it.
- But LPP is not lost if the client merely tells the third party what (or some of what) the document says. If a firm were to write to FCA and say “we have received legal advice that says …”, it will not have affected the LPP status of the document that holds that advice.
- A word of warning. A firm may feel that it has reached a point where it is best to give everything (including LPP material) to FCA and make things easy in the process. Or that if it withholds the LPP materials, this will appear gratuitously uncooperative. Do not in such a case be tempted to cave in and pass over anything with LPP status. The point about LPP documents is that they seldom only say what one thinks they do. Moreover, handing them to FCA affords the Regulator complete freedom to interpret the advice in its own way and hold this against the firm.
- If a regulated firm apprehends that it has breached the rules in a serious way and determines to create an internal review to consider what it must do to improve, please involve solicitors under formal engagement with the process. In that way, the report – which may amount to a litany of admitted serious rule breaches – will be protected by LPP. Otherwise, the firm will simply have created a weapon that FCA can happily demand to see and then use against the firm as evidence of its malpractice.
- LPP and confidence are not the same thing, though they are often confused. LPP is a right to prevent disclosure of legal advice that is lost for ever if the client in the relationship chooses to waive it (by disclosing the advice to a third party). Confidence is an obligation on the client that can apply to just about anything and which (a) lasts as long as some other party wants it to last but (b) is also subject to all sorts of exceptions, including obligations to comply with directions from the FCA.
- Privilege is also a term occurring elsewhere in the legal world. For example privilege against self-incrimination, and privilege (absolute or qualified) to make otherwise defamatory statements. These are not considered here as they are very different in character and should not arise in relation to FCA’s interests in the affairs of a regulated firm (or at least, one would like to think so).
In summary, if the FCA is imposing its supervisory will and calling on you to deliver up all manner of material to satisfy a s165 notice or an enforcement case, you must take legal advice and you must carefully consider the matter of LPP, which is there for your protection.
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