The attorney-client privilege, which prohibits the compelled disclosure of confidential communications between an attorney and their client, is enshrined in common law and statutory codes across the country. See, e.g., Cal. Evid. Code § 950 et seq.; Upjohn Co. v. United States, 449 U.S. 383, 389 (1981) (the fundamental purpose of the attorney-client privilege “is to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice”).

The long-standing recognition of this privilege reflects the policy decision that the encouragement of candor between lawyers and clients outweighs probative and evidentiary value of those frank communications to the administration of justice.

But what happens when a different policy choice is made?

Federal bank regulators, namely the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau (CFPB), the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, have taken the position that federal statute 12 U.S.C. 1828(x) provides for disclosure of attorney-client privileged information to bank regulators to assist those agencies in their supervisory missions.

For example, in a 2012 rulemaking the CFPB stated: “The Bureau continues to adhere to the position that it can compel privileged information pursuant to its supervisory authority.” 77 Fed. Reg. 39617, 39619 (2012) (citing U.S. v. Buco, No. CRIM. 90-10252-H, 1991 WL 82459, at *2 (D. Mass. May 13, 1991) (“the public interest served by encouraging the free flow of information between the banks and their federal regulators is substantial”).

Functionally that means that privileged information, typically unavailable to regulators like the Securities and Exchange Commission and the Department of Justice, is accessible to some federal regulators.

In a white collar defense practice focused on the financial services industry, the bank regulators’ position on privileged material has three practical implications.

First, in-house counsel, whose interviews by regulators in connection with Securities and Exchange Commission and the Department of Justice investigations are typically constrained by privilege issues, can be interviewed in full by bank regulators. Their records can also be subject to full examination by those regulators.

Second, in connection with an interview of in-house counsel by a bank regulator, it is important to create a record that disclosure of attorney-client privileged material for purposes of that interview does not constitute a waiver of that privilege for other purposes, pursuant to 12 U.S.C. § 1828(x) (“[t]he submission by any person of any information to the Bureau of Consumer Financial Protection, any federal banking agency, state bank supervisor, or foreign banking authority for any purpose in the course of any supervisory or regulatory process of such bureau, agency, supervisor, or authority shall not be construed as waiving, destroying, or otherwise affecting any privilege such person may claim with respect to such information under federal or state law as to any person or entity other than such bureau, agency, supervisor, or authority”). Such a record prevents non-bank regulators, law enforcement, or civil litigants from claiming waiver of the privilege in follow-on proceedings.

Finally, financial or other institutions subject to oversight by bank regulators should internalize the scope of bank supervisor’s access to privileged information and adapt compliance regimes accordingly in order to head off issues that may result in invasions of the privilege.