My Lords, the amendment seeks to amend Clause 15, and I will speak to Amendment 49, which seeks to amend Clause 22.
When those clauses were introduced into the Bill in Committee they provoked a measure of interest and concern on the part of the Law Society of Scotland, which suggested amendments to be introduced on Report. For that reason, it is necessary that I declare an interest as having been a qualified lawyer in Scotland since 1971, initially as a solicitor and thereafter as counsel at the Scottish Bar.
I mention that with a measure of diffidence, having regard to the comments made earlier about the ethical training of lawyers in general. Joking apart, it is right that your Lordships should be aware that the introduction of these two clauses gave rise to the concern to which I have referred.
I offer no criticism about this because I am aware that on the second day in Committee a considerable volume of amendments were dealt with, but the amendments that introduced Clauses 15 and 22 took place without any detailed discussion. Clause 15 would add an additional section, Section 59ZA, to the Financial Services and Markets Act 2000, the terms of which are relevant to determining whether the carrying on of a controlled function in relation to a regulated activity of an authorised person is for the purposes of the Act “a senior management function”.
Clause 22 would add a further section to the 2000 Act, Section 64A, which gives the Financial Conduct Authority and the Prudential Regulation Authority power to make rules of conduct for approved persons. Clauses 15 and 22 have given rise to concern from the Law Society as to how their provisions impact on the duty of Scottish solicitors to maintain confidentiality in all their dealings with their clients. As your Lordships will be aware, solicitors in Scotland are regulated by the Law Society of Scotland. They are bound to observe their professional obligations and are liable to be sanctioned at the instigation of the Law Society if they fail to meet those obligations. The duty of confidentiality is set out in detail in the Law Society of Scotland’s Rule B1.6. It places a duty on solicitors not to disclose information about their clients, including
communications between solicitor and client unless permitted by the client, or compelled by a court or Parliament to do so. This ethical duty of maintaining confidentiality provides for checks and balances, as a solicitor is never the final judge as to whether the information must remain confidential. Legislation and court process, as well as client consent, provide means by which information might legitimately be disclosed. The policy considerations behind this rule of confidentiality are that the rule affords full and open exchange between clients and their lawyers. It also helps to ensure that full and frank advice is provided.
Legal professional privilege, which is also mentioned in the amendments, has a similar, albeit not identical, effect. It protects from disclosure confidential communications and evidence of those communications between a professional legal adviser and their client, provided the communications are for the purposes of preparing for litigation or the client seeking and receiving legal advice. For these purposes, the tendering of legal advice is not confined to informing a client what the law is; it includes the solicitor or counsel involved giving advice as to what action the client should prudently and sensibly take in the relevant legal context.
The need for these amendments was, as I have indicated, identified by the Law Society of Scotland, having consulted a number of its members. It sent earlier drafts of the amendments to among others, the Treasury and the noble and learned Lord, Lord Wallace of Tankerness, the Advocate-General for Scotland. The Law Society and I are grateful to the Treasury and indeed the Advocate-General for responding to that approach and giving us an indication of the Government’s thinking on the issues involved. Before saying a few more words about the details of the amendments, I think it right to note that other regulatory bodies in the United Kingdom which have members who are either solicitors or counsel may have similar interests in the subject matter of these amendments.
The arguments in support of Amendment 27 to Clause 15 can be put very shortly. They relate to the terms of the new Section 59 of the 2000 Act. Those provisions appear to open up the opportunity of legal advice given to a bank by a solicitor being deemed, whether by the Financial Conduct Authority or the Prudential Regulation Authority, as amounting to the taking of decisions or alternatively,
“to participating in the taking of decisions, about how one or more aspects”,
of a serious management function should be carried on. If such a view could be taken of the actions of a solicitor, such actions could be deemed to provide a factual basis for determining, in terms of new Section 59ZA(1) of the 2000 Act, whether a function within a bank is a “serious management function”. The Law Society is concerned that such events might lead to an erosion of the distinct professional relationship between solicitor and client and the obligations that solicitors undertake to provide advice to the client.
What is unclear from new Section 59ZA(3) is whether the Government intend that such solicitors, advising on legal issues alone, will also be considered as having participated in the taking of decisions. The Law Society of Scotland considers they should not be and it believes
that that should be made clear in the Bill. That is what Amendment 27 seeks to achieve. If the Minister takes a different view, I am sure he will recognise that this issue is a concern to members of the legal profession in Scotland and I respectfully invite him to explain to your Lordships his reasons for doing so, so that those lawyers will be made aware of them.
The need for Amendment 49 arises out of Clause 22, which was introduced into the Bill on the second day in Committee. It would insert a new Section 64A into the 2000 Act, which would grant power to the regulatory authorities, the FCA and the PRA, to make rules of conduct for approved persons under Section 59 of the 2000 Act and persons who are employees of banks. Both categories could include solicitors, counsel and advocates in different parts of the United Kingdom. They would be under duties of confidentiality and legal professional privilege with regard to communication between agent and client.
It seems abundantly clear that the rules of conduct made by the regulatory authorities could conflict with the duty of confidentiality on solicitors and with legal professional privilege as they are understood and apply in Scotland. Amendment 49 is designed to resolve any potential conflict. In particular it provides in the proposed new Section 64A(12)(b) that in the application of new Section 64A of the 2000 Act in Scotland, no professional legal adviser, either advocate or solicitor, could be required, under the rules of conduct made by the FCA or the PRA, to answer any question that he would be entitled to refuse to answer by virtue of any rule of law relating to confidentiality. In that important respect, it adds to the protection currently afforded to professional legal advisers by Section 413 of the 2000 Act, which severely limits the extent to which a person can be required under the 2000 Act to produce, disclose or permit the inspection of protected items. What Section 413 does not do is make any reference to a lawyer refusing to answer a question.
There is concern that Section 413 of the 2000 Act as currently drafted would not entitle a solicitor in Scotland to refuse to answer questions posed in terms of rules of conduct made by either the FCA or the PRA, even though answering those questions would breach their duty of confidentiality to their client. The Law Society accordingly seeks to have this issue clarified. The society’s view, with which I agree, is that it is important to ensure that rules of conduct made in terms of new Section 64A of the 2000 Act do not place a solicitor who is either a senior manager or employee of a bank in a position where there would be a conflict between his or her duties under the rules of conduct and his or her duties as a professional legal adviser, duties that are regulated by the Law Society of Scotland.
I argue in terms of both amendments that these issues should be addressed now and not deferred until such time as the FCA or the PRA seek to exercise the new statutory powers they are to be given. Against that background, I beg to move.
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