Privilege Is Shaky In The World Of Bank Regulation

“Regulators and financial institutions have debated for decades whether the regulator’s examination powers trump the attorney-client privilege,” writes Dechert attorney Thomas Vartanian. These days, he says, the regulators are winning, as he makes a case that financial institutions, their counsel and a pillar of U.S. jurisprudence are under assault. A change in the law that was expected to strengthen privilege – a 2006 amendment to the Federal Deposit Insurance Act that said when financial institutions share privileged information with their regulator, it does not constitute a waiver of the privilege – he says has turned out to have the opposite effect. Regulators just used it to bolster their authority, maintaining that it obviated a key defendant argument against regulators’ being able to pierce the shield of privilege, because defendants could no longer say that if they turned over privileged material to regulators it would unfairly compromise their ability to contend with third parties.