The Irish courts recognise that litigation privilege can apply where the dominant purpose for the creation of a document was a regulatory or criminal investigation. Nonetheless, regulators can sometimes request to review legal advice to understand the steps a regulated entity took at a particular time, but also to understand the culture of the organisation. In some instances, a regulated entity’s claim to privilege over particular documents responsive to an information request will be scrutinised in detail. The expectations of the regulator in terms of how privilege is asserted, and how privileged documents are listed in privilege schedules, can be exacting, often more so than might be expected.
Waiver of privilege
Confidentiality lies at the heart of legal professional privilege. That confidential character may be lost by waiver, express or implied, or by mistake: for example, when a party inadvertently does not claim privilege. Privilege will generally be taken to have been waived where a document or its contents are disclosed to an adverse party, unless it is expressly reserved. This includes disclosures to a regulator whether or not during a contentious engagement (and therefore includes, for example, disclosures during supervisory engagements or the routine provision of Board or Committee packs).
A regulated entity may wish to disclose privileged documents to a regulator on a limited basis in a manner that preserves that privilege outside of that limited context i.e. the party waives privilege against the regulator but not against any other party. With regard to disclosure to a third party for a limited purpose, the Irish Supreme Court has held in Fyffes v DCC1 that there may be situations in which it is desirable, or even mandatory, that privileged documents be disclosed to a third party for a limited purpose. In our experience, regulators can be willing to engage in negotiating what have become known as ‘Fyffes’ type limited waiver agreements. These record the fact that the regulated firm is disclosing privileged material to the regulator for a limited purpose, that the firm therefore does not intend to waive privilege as against any third parties (such as any customers who have commenced or may commence litigation against the firm) and often include other contractual stipulations as to the regulator’s conduct regarding the relevant documentation. These arrangements can assist when seeking to meet a regulator’s expectations when engaging with informal or statutory information requests, while at the same time preserving privilege to a significant extent as against third parties.
In the United Kingdom there have been some interesting developments on the recognition of privilege in regulatory investigations. In Sports Direct v FRC ,2 Sports Direct provided privileged documents to their auditors under a limited waiver. The auditors in question were the subject of a regulatory investigation by the FRC which exercised statutory powers seeking the privileged documents from Sports Direct. These statutory powers allowed for a claim to privilege to be made, but the FRC argued that because the information was not being used against Sports Direct, there was no infringement of the right to privilege and that any infringement of the right was a technical one. This argument was not accepted by the Court of Appeal which found that the fact that Sports Direct was not the subject of the regulatory investigation did not affect the right to privilege.
The Court of Appeal reaffirmed the right to privilege and the fact that there are only two exceptions to privilege. Those exceptions arise where the communication (over which privilege has been claimed) was for criminal purposes or where there is a statutorily prescribed exception. The FRC has appealed to the Supreme Court on this point. This case has interesting touch points with Irish law given that key Irish statutes conferring powers on regulators to compel the production of documents from regulated entities and other unregulated persons also recognise the right to privilege.
For regulated entities involved in regulatory investigations, such as the Central Bank’s Administrative Sanctions Procedure (ASP), there is a careful balance to be managed when making claims of privilege. Firms must be mindful of their obligations to the regulator when responding to document requests. Firms will also be conscious of the ability of certain regulators to impose sanctions, such as the Central Bank’s power to impose a fine of up to 10% of revenue. Guidance published by the Central Bank in 2019 indicates that exemplary co-operation by firms going beyond the basic requirements in providing information or documentation will ordinarily be treated as a mitigating factor. Providing the Central Bank with the output of investigations or third party reviews, providing additional information to assist with the investigation or helping the regulator understand the matters under investigation will also be treated as mitigating factors.
Decisions on the treatment of privileged material in regulatory engagements and regulatory investigations require careful assessment and a consideration of all of the factors discussed above.
For more information on privilege and regulatory engagements contact Enda Hurley, Head of Litigation and Dispute Resolution, Kenan Furlong, Head of White Collar Crime and Corporate Reputation, Dario Dagostino, Head of Regulatory Risks and Investigations, Sinéad Prunty, Financial Regulation Knowledge Lawyer and Helen O’Connor, Litigation and Dispute Resolution Knowledge Lawyer.