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How much access does a regulator have to a firm’s internal investigation into potential wrongdoing?

The short answer is a lot, unless the material is covered by legal professional privilege, and even then there is a notable trend among enforcement authorities (both criminal and regulatory) to challenge the boundaries of legal privilege.

Starting the process: don’t shout!

The general rule of any internal investigation is that people should be informed about it on a need-to-know basis.

Management must appreciate from the outset that internal written communications about the reasons for the investigation will not be privileged and may be accessed by a regulatory body. Such communications should therefore be as neutral as possible and should avoid provisional conclusions or pre-conceived notions of culpability. Thought must also be given to how and when issues should be escalated and reported within the firm. This will help maintain confidentiality in relation to reporting lines. In every case, care needs to be taken where legal advice is reported between non lawyers in order to maintain privilege.

Legal Professional Privilege

Documents which are covered by legal professional privilege are confidential to the firm. They will not have to be produced to a regulator or disclosed in the litigation process. Preserving legal professional privilege is thus of critical importance. However, English law in this area is developing, and it is important to be aware of the restrictions on privilege. In this context, there are two main types of privilege applicable in England and Wales:

  • Legal advice privilege; and
  • Litigation privilege.

Legal Advice Privilege

Legal Advice Privilege attaches to all communications passing between the client and its lawyers in connection with the provision of legal advice. However, “client” is narrowly defined. Within a firm, client means that group of people who are responsible for obtaining the advice in question. Moreover, to remain privileged, the communication must be, and remain, confidential. Internal reports are not generally privileged if they do not contain legal advice and are simply the result of a fact finding exercise with no adversarial proceedings in contemplation. This is true even if the report is prepared by or for lawyers.

Litigation Privilege

Documents created for the purposes of preparing for, or conducting, adversarial proceedings are privileged if this was their dominant purpose and the document is a confidential communication between the lawyer and client, or either and a third party such as a compliance consultant, provided that adversarial proceedings were in reasonable contemplation of the party.

At present the general view of the law is that litigation privilege applies to communications in the course of, or in contemplation of, regulatory enforcement proceedings, but that is unlikely to extend to documents produced for investigative procedures, such as FCA scoping meetings, or for a firm’s fact finding exercise to assess the need for notification under the FCA Principles for Business 11.

Conclusion

Firms must be acutely aware of the issues surrounding privilege when conducting internal investigations. Specifically, they must be conscious that the involvement of a lawyer in the production of material (for example, an employee’s witness statement) does not of itself confer privilege. Careful consideration should therefore be given at the outset to the effective involvement of lawyers and to the structure and scope of an internal investigation. Otherwise, you may find someone unexpected reading over your shoulder.

For further information regarding this topic or any other insurance litigation matters please contact Roger Franklin – Head of Insurance Litigation, or any member of the Edwin Coe Insurance Litigation team.

Edwin Coe LLP is a Limited Liability Partnership, registered in England & Wales (No.OC326366). The Firm is authorised and regulated by the Solicitors Regulation Authority. A list of members of the LLP is available for inspection at our registered office address: 2 Stone Buildings, Lincoln’s Inn, London, WC2A 3TH. “Partner” denotes a member of the LLP or an employee or consultant with the equivalent standing.

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