Examination Tools: You’ve Received a Regulatory Document Request for Emails. Now What?

May 20, 2020by Jason Dillingham

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One of the tools most routinely utilized by financial regulators is the requested production of electronic communications, both as part of cause and cycle examinations of member firms. These requests have generally focused on communications from the examination period and may drill down to those involving specific individuals and customers.

For example, FINRA may request a firm to produce email communications between a specific representative and his or her customers who purchased units in an alternative investment product. FINRA may also request the firm to produce email communications between the representative, their supervisors and compliance staff as well.

Typically, these reviews are focused on determining whether any evidence that sales practice violations or supervisory failures have occurred. Information gleaned from these email communications can be a powerful tool in building a case against a firm, its principals or a registered representative.

As such, broker-dealers and investment advisors must use thoughtful care and diligence in making, collecting, and producing email communications in order to avoid inadvertently forfeiting a firm’s right to exercise attorney-client privilege over sensitive communications.

Technology and Attorney-Client Privilege: How Not to Lose It

The tool of attorney-client privilege can be as brittle as it is strong. Proper use of attorney-client privilege can build walls of defense around a firm, but inadvertent waiver can cause those fortifications to crumble upon inspection. As technology quickens the pace of industry, firms are just as likely to overlook attorney-client privilege as they are to misuse it.

Although ease and efficiency are often the primary concerns when communicating, neglecting attorney-client privilege can expose a firm to long-term regulatory ramifications. To protect privilege, a firm must be able to identify the components of attorney-client confidentiality, which communications should be privileged, and what can waive the protections of privilege. A firm should also be aware of what other tools may minimize exposure were it to lose its privilege.

Attorneys, as a part of their rules of professional conduct, are generally required to maintain the confidentiality of information, regardless of format. This confidentiality requirement extends beyond just the information communicated by a client, but also to all information relating to the attorney’s representation. The attorney-client privilege may also apply to non-lawyers associated with or retained by, and supervised by, the attorney. This includes independent investigative, examination, and consulting assistance, so long as the attorney can reasonably ensure such assistance is consistent with one’s professional obligations.

If the consultants are competent, confidential and compatible, then their work product can receive protection under the attorney-client privilege. This protection can be the crucial difference in the disclosure of sensitive self-examination findings when making discovery production in legal or administrative proceedings.

How Does Attorney-Client Privilege Work?

For communications to receive privilege, they must be made between an attorney and a client, in confidence, for the purpose of seeking legal advice. An attorney’s mere presence in the room, on a call, or included in an email does not automatically confer attorney-client privilege to that communication. Nor does the discussion of non-legal business elements automatically waive that privilege. The purpose of the meeting or communication must be primarily or predominately engaging the attorney to provide legal advice. This final element can be especially difficult to overcome for careless or violative electronic communications that must be preserved in full.

This line can become more blurred when the communication is made with in-house counsel. While the rules say that privilege applies without distinction to internal or external counsel, in practice, they receive distinctly different treatment. A primary cause of this distinction is due to an in-house counsel’s role in a modern firm.

Firms are increasingly relying on internal corporate counsel to perform in expanded executive roles over the business aspects of a company. Many financial firms have lawyers at the partnership level or otherwise involved in the management of a firm. When in doubt about an attorney’s role in a firm, the best first test is to look to the title on his or her business card. Even if in-house counsel is properly designated, privileged communications still require the pursuit of legal advice.

Proactive firms should implement training, not just for their senior executives, but for all staff on important practices to preserve attorney-client privilege. Any staff member that is entrusted with sensitive documents or information must rely on the guidance of their firm and its counsel when handling privileged material. Society’s comfort with technology has brought with it an inattention to the way electronic communications are treated.

A firm should have policies in place that limit casual transmission of privileged information. This is especially important given the ease by which regulators can index, access, and produce it in front of hearing panels and juries. While it always remains an attorney’s responsibility to manage and protect privilege, a smart firm takes its own measures to implement systems that ensure their privilege remains intact.

This is the first in a three-part blog series on regulatory examinations and attorney-client privilege. Next up, we'll be discussing social media and how privilege protections can be waived.

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Jason Dillingham
Smarsh Blog

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Smarsh handles information you submit to Smarsh in accordance with its Privacy Policy. By clicking "submit", you consent to Smarsh processing your information and storing it in accordance with the Privacy Policy and agree to receive communications from Smarsh and its third-party partners regarding products and services that may be of interest to you. You may withdraw your consent at any time by emailing privacy@smarsh.com.