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26 June 2020

A regulator's demand for documents - whose privilege is it anyway...?

A recent decision of the English High Court - A v B, The Financial Reporting Council Limited - deals with an interesting issue of privilege in relation to regulatory investigations and enforcement. Clients of any regulated service providers with whom privileged documents are shared should pay particular attention to the terms of their engagement; they should ensure they are notified of regulatory demands for documentation which may be privileged.    

In this case, The Financial Reporting Council Ltd (the "FRC") (the regulator for auditors in the UK) sought disclosure from the auditor of documents belonging to the auditor's client. Furthermore, the client claimed privilege over those documents. Matters ground to a halt, however, as there was a dispute between the auditor and its client as to whether the documents were, in fact, privileged.  

The court did not grant the relief sought by the client (which basically sought clarification as to who was entitled to exert the privilege in the documents requested by the FRC). It would not be drawn on the specific terms of the declaration sought. However, the court did say that the auditor must form its own view on whether documents are privileged, whether the privilege is that of the auditor or its client. The court said that the statutory duty to disclose documents to its regulator was on the auditor and disclosure could only be refused on the grounds that a document was actually privileged. Mere assertion of privilege by the client was insufficient.

If the client disagrees with the service provider's analysis of privilege, then it will need to apply to court for an injunction preventing the service provider from giving the regulator the document. Whilst the regulator may, of course, ultimately be interested in what the court determines and might join that action, in reality this debate is one to be had between the client and the service provider.        

This case may have wider impact on other areas of regulation such as in FCA-authorised businesses where the FCA utilises its powers to compel a regulated person to disclose documents. The question there would be whether the client's documents are "protected items" under section 413 of the Financial Services and Markets Act 2000. If the client and the service provider do not agree on a document's "protected" or privileged status, this judgment is likely to be "read across" so that the service provider has to make up its own mind whether to exert the client's claim to privilege. If the client disagrees, it will have to apply to court for injunctive relief, seeking to prohibit the service provider from disclosing the document to the FCA.  

The key point to bear in mind as a client in mitigating this risk is to ensure that all of your contracts with regulated service providers include specific wording which protects your privilege. In particular, there should  be an obligation which requires the service provider to notify you should they receive a regulator's request or demand for documents which relate to their engagement with you. That should start a dialogue in which you can ascertain and debate, hopefully in a grown-up manner, which documents might or might not be privileged. If the grown-ups cannot sort this amicably, at least you will then have the opportunity to seek the court's assistance in blocking the regulator's access to the documents by preventing the service provider disclosing it.     


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