Privilege in the context of regulatory investigations: latest guidance from the High Court

Another recent High Court decision has considered the question of privilege in a regulatory context: A v B & Anor [2020] EWHC 1491 (Ch).

As with other recent decisions of this kind, the issue arose in the context of an auditor required to produce documents to its regulator, the Financial Reporting Council (“FRC”). The decision is likely to be of broader interest to financial services institutions, because it may indicate the approach the court is willing to take more generally in cases involving a regulator using its powers of document compulsion, such as the FCA.

In the present case, the FRC sought disclosure from the auditor of documents belonging to the auditor's client, and over which the client claimed privilege. However, there was a dispute between the auditor and its client as to whether the documents were - in fact - privileged. Importantly, the court held that the auditor must form its own view on whether documents are privileged and can therefore be withheld on that ground, regardless of whether the privilege is that of the auditor or its underlying client. It considered that the duty to disclose 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.

In the context of the FCA's powers to compel a regulated person to disclose documents, the question would be whether the client's documents are “protected items” under s.413 of the Financial Services and Markets Act 2000. Following the decision in Sports Direct International plc v The Financial Reporting Council [2020] EWCA Civ 177 (see our post here), there could be no argument that disclosure of the documents (if indeed subject to privilege) would not amount to infringement of the client's privilege, or that the client's privilege has been lost by providing those documents (on a limited waiver basis) to the regulated person.

However, the same question may arise as to which party is required to determine whether privilege attaches to the documents in question. Subject to any appeal, the decision suggests that the regulated person cannot refuse to produce documents on the grounds that a claim to privilege has been asserted or could be asserted by a client (or other third party to whom duties of confidentiality are owed); the regulated person must take its own view on the privilege claim.

For a more detailed analysis of the decision, please read our litigation blog post.

Note: In October 2020, the Court of Appeal refused an application for permission to appeal.