The decision of the UK’s Serious Fraud Office (SFO) to charge Barclays and four of its former senior managers, including its former Group Chief Executive Officer (CEO) on June 20 was the first time since the financial crisis that individual senior bankers have been criminally charged in the UK.
Some commentators have rushed to call theSFO’sdecision extraordinary and unprecedented.Others have suggested it could have been calculated by the SFO to save itself from abolition with Prime Minister Theresa May having made no secret of her desire to merge it with the National Crime Agency before the last general election. However, there is no doubt it is indicative of the general trend since the financial crisis for the regulators and other enforcement agencies to focus on the culpability and responsibilities ofindividual senior bankers as well as the banks themselves.
This is a route external commentators have urged the regulators to pursue as it chimes with the public mood. For example, Andrew Green QC’s November 2015 critical review of the enforcement investigation of the UK’s Financial Services Authority (FSA) into the failure of HBOS recommended that any future UK enforcement investigations should consider as a standard check whether the most senior managers of any bank should be investigated,as well as the bank. If a decision was made not to investigate, say the bank’s CEO, it was to be expressly documented why not.
The subsequent roll out of the Senior Managers and Certification Regime in March 2016 has ensured that the prescribed responsibilities of every senior manager of a UK bank are expressly documented and made plain to both those senior managers themselves and their regulators. As the scope of every individual senior banker’s responsibilities, together with their corresponding potential legal and regulatory liabilities,are more sharply defined, individual senior bankers need to pay closer attention themselves to the quality and the scope of the legal advice they receive whilst in those roles. In the event anything goes wrong, the critical questions are likely to be whether they received any legal advice on which they might want to rely and, if so, in what capacity did they receive that legal advice?
At least one of the charged individual Barclays defendants has made clear that he intends to rely, at least in part, on legal advice provided at the time of the Qatar deal, though it is not clear in what capacity he received that advice. In other words, did he receive that advice on behalf of the bank, as one of its corporate representatives, or can he in any way argue that the advice was for his individual benefit and use as well? Certainly he hopes so, with his lawyer having issued a public statement that he intended to vigorously defend against these charges not least because “as one might expect in the challenging circumstances of 2008, [his client had] sought and received both internal and external legal advice on each and every aspect of the accusations levelled today by the SFO.”
In the wake of the SFO investigation, the individual defendants have now all sought and retained their own independent legal advice. However, it is unlikely they had sought and received such independent legal advice themselves at the time of the deal in question. Instead they must now seek to rely on the advice the bank received at the time from its lawyers. They are also at risk as to how the bank’s own lawyers may advise the bank to defend itself. There is a tendency for banks to seek an early settlement,if at all possible,of any enforcement proceedings against them. In doing so, they may make certain general admissions that could undermine the individual defence of the individuals responsible for the decision-making and management of the bank at the time.
The potential lack of independent legal advice that these senior individuals may not have sought and received at the time of the events in question may now also undermine their own ability to defend themselves. For example, the bank may choose not to waive privilege over any legal advice the bank received and not allow the individual bankers to rely on that corporate legal advice themselves.
However, this particular case develops, it underlines the vulnerability of individual bankers to future prosecutions and regulatory actions, and the need for them to ensure they have access to their own independent legal advice in case they need to defend their actions and decisions at some future date.A well-advised senior banker should ensure sooner rather than later that their bank is going to enable them to seektheir own independent legal advice as and when they need it. The SFO’s decisiononly serves to underline that the risks any individual senior banker must manage for themselves are on an upward trend.
The most immediate steps any individual senior banker can take is to check and review the scope of the indemnities and any related insurance cover that their bank currently offers them to consider whether that indemnity cover is adequate in all the circumstances. For example, do the current indemnity arrangements enable them to access independent legal advice without cost to themselves and in what circumstances?
Harvey Knight is head of Withers’ Financial Regulation team. Harvey acted on Ford, R(on the application of) v The Financial Services Authority [2011] EWHC 2583, which established the principle of joint legal privilege in advice that a QC had given to an institution and its senior executives