The letter from the FSA’s Adair Turner to Marcus Aguis published yesterday by the Treasury Select Committee raises an as yet under-scrutinsed element to concerns about the current Banking crisis. The crucial passage is this from Lord Turner:
I wished to bring to your attention our concerns about the cumulative impression created by a pattern of behaviour over the last few years, in which Barclays often seems to be seeking to gain advantage through the use of complex structures, or through arguing for regulatory approaches which are at the aggressive end of interpretation of the relevant rules.
It is likely that Barclay’s lawyers (in and/or out-house) are contributing authors of such aggressive interpretation and have assisted in the creation of the complex instruments (through the design of legal instruments and opining on their lawfulness). It is strongly arguable that aggression and complexity were contributory factors in the collapse of markets; the inability of managers and markets to understand the extent and interlinking of risk; and, the inability of regulators to do their job effectively.
That is not to say lawyers’ actions for their clients were the only or main cause of the Banks’ problems. A very interesting question arises as to how far the lawyer’s claim: ‘I was only acting on instructions’ exculpates them from blame. Ethically, there may be a distinction, for instance, between advising on an aggressive interpretation dreamed up by someone else and actively developing interpretations to be offered to clients. There will be legitimate differences of opinion on whether either or both approaches are ethically acceptable.
A critical question for lawyers, their regulators and – it might be hoped – any broader banking inquiry, is the extent to which current frameworks and cultures within law firms and the professions’ regulators contributes to an aggression and complexity which is a significant tool of Banking hubris and creative compliance. One school of thought, with a rich tradition dating back to Lord Brougham’s defence of Queen Caroline, is that:
“an advocate, in the discharge of his duty, knows but one person in the world, and that person is his client. To save the client by all means and expedients, and at all hazards and costs to other persons, and among them, himself, is his first and only duty; and in performing this duty he must not regard the alarm, the torments, the destruction which he may bring upon others.”
The currency of that view is reflected in Lord Hunt’s review of legal services regulation conducted for the Law Society: “Client first was bred into me”.
‘Client first’ fits well with an adversarial notion of justice where a neutral judge oversees the process; but it is a notion which is now modified in many areas of the law: family justice in particular, where the interests of the child moderate an adversarial ethic; personal injury where the overriding interest (and control of costs) has an impact; and even in crime where there are more questionable attempts to dilute the advocates zeal for their client. Banking clients come with deeper pockets than clients with more ordinary cases and yet there is a lesser restraint on their lawyers in the Codes and, perhaps, in practice. It is true to to say that the SRA’s principles should provide some restraint (after all the public interest, and the public interest in the administration of justice trump the ‘client first’ view where client and public interest conflict). Yet commercial incentives, the very understandable need of firms to be, and be seen to be, business-focused and ‘commercially aware’, coupled with deep-pockets and the lightest of light regulatory touches may from a public interest perspective be something of a toxic combination. It explains, I suspect, in part where Lord Turner’s concern about aggression and complexity comes from. The question is: will the SRA act? And will any general banking inquiry look closely at the role and approach of professional advisers when they act for the banks?