In-house lawyers news archive
The Financial Services (Banking Reform) Act 2013
26 February 2014
Spotlight on the work of the law reform team. For ILG newsletter February 2014
The Society's law reform team recently acted to prevent new financial services legislation having an unforeseen impact on in-house lawyers. Here's what happened.
The Financial Services (Banking Reform) Act 2013 received royal assent on 18 December 2013. This Act will bring into law structural and cultural changes to the banking system, by:
- introducing a 'ring-fence' around the deposits of people and small businesses, to separate the high street from the trading floor and protect taxpayers when things go wrong
- making sure the new Prudential Regulation Authority (PRA) can require banks to account for the way they separate their retail and investment activities, giving it powers to enforce the full separation of individual banks
- imposing higher standards of conduct on the banking industry by introducing a criminal sanction for reckless misconduct that leads to bank failure
- giving depositors, protected under the Financial Services Compensation Scheme, preference if a bank enters insolvency
- giving the government power to ensure that banks are more able to absorb losses
- introducing a cap on payday loans
During its progress through the UK Parliament, concerns were raised about the potential effect on in-house lawyers, specifically relating to part 4 - Conduct of Persons in the Financial Services Industry - as a result of government amendments. Amongst these amendments, were proposals to allow the Financial Conduct Authority (FCA) and the PRA to be able to make rules about the conduct of:
- persons who either regulator has approved including senior managers,
- employees of banks, in respect of their qualifying functions, which are a function relating to the carrying on of activities, whether or not regulated by a bank or the employer. Employee includes the provider of services under contract who is subject to the supervision, direction or control concerning how those services are provided.
The Society's Banking, Company and Insolvency Law Sub-Committee, which is one of the Society's law reform sub-committees, considered that this could potentially make in-house solicitors subject to the rules of the PRA and the FCA, and could affect specifically a solicitor's duty of confidentiality towards their client (or their employer in this case), and legal professional privilege.
In addition to soliciting the support of the Advocate General for Scotland, Lord Wallace of Tankerness, the law reform team prepared amendments to the Bill to clarify that these provisions would not affect confidentiality and legal professional privilege. The team was delighted to have these tabled by Lord Mackay of Drumadoon in the House of Lords on 26 November 2013. The debate of these amendments resulted in the UK Government lord, Lord Newby, providing assurances that these provisions within the Bill would not affect confidentiality or legal professional privilege. This is now therefore a matter of Hansard record.
The team was pleased to have received these assurances, which provide a level of security and certainty for members working in this field of law.
For more information on the Act itself, please see https://www.gov.uk/government/policies/creating-stronger-and-safer-banks).