The Inquiry You Funded: Drafting Regulatory Cooperation Into the Engagement Letter

The request that arrives without a budget line

A regulator's letter is not a commercial instruction. It is a demand for information, usually framed by statute or by the regulator's own rules, and it frequently lands on a firm that has already closed the matter in its own mind. The client may be the subject of the enquiry, a witness, or simply a counterparty whose file has become relevant. What follows — file retrieval, privilege review, witness interviews, written explanations, attendance at meetings — consumes senior time and management attention. Yet many engagement letters say nothing about who pays for it.

The result is predictable. The firm treats cooperation as part of the service, absorbs the cost, and discovers at the next partner meeting that an unplanned regulatory request has consumed the margin on the mandate. The client, for its part, may not realise that the request is chargeable at all, because nothing in the retainer suggested it would be. The answer is not to refuse cooperation. It is to price it in advance, in language that a client can understand and a regulator will not misread.

Start with a definition that does real work

A clause that refers vaguely to "regulatory assistance" will be interpreted narrowly when the invoice arrives. The engagement letter should define a Regulatory Request by reference to its source and its form: any request, notice, summons, enquiry, investigation, information demand or interview invitation issued by a regulator, competent authority, court or tribunal with jurisdiction over the client or the firm's services. The definition should cover informal requests as well as formal ones, because the informal request is often the one that expands.

The corresponding Cooperation Services should be described in operational terms: collating and reviewing documents, preparing chronologies, drafting written responses, arranging and attending interviews, liaising with the client's legal advisers, and providing witness statements or certifications where required. Precision here is not pedantry. It determines whether a five-figure workstream is inside the fee or outside it.

Notification, direction and the client's own obligations

The firm cannot manage a regulatory request it does not know about. The engagement letter should require the client to notify the firm promptly — ideally within a specified number of business days — of any Regulatory Request that concerns the services, the client's dealings with the firm, or documents held by the firm. It should also confirm that the client authorises the firm to cooperate to the extent required by law, and that the firm may respond directly where a deadline leaves no practical alternative.

Direction matters as much as notification. The client should nominate a single point of contact with authority to approve scope and cost. Where the client is itself advised by counsel, the engagement letter should record how the firm will take direction and how competing deadlines will be resolved. Without that, the firm becomes the default project manager for an enquiry it did not commission.

Confidentiality, privilege and the limits of consent

Cooperation clauses must sit alongside confidentiality obligations, not override them by accident. The engagement letter should state that the firm will preserve legal professional privilege where it applies, will seek the client's consent before waiving it, and will not produce privileged material without a documented direction. At the same time, the client should acknowledge that the firm may disclose information to a regulator where compelled by law or where the client has authorised disclosure.

A useful drafting technique is a short disclosure protocol annexed to the retainer. It identifies who signs off productions, how redactions are logged, and what happens if the regulator's deadline conflicts with the client's review timetable. This protects the firm from later allegations that it disclosed too much or too little, and it gives the client a clear picture of the process before it begins.

The rate card and the recovery mechanism

The commercial heart of the clause is a schedule of rates. Cooperation Services should be charged on a time basis, using the firm's standard hourly rates for the grade of staff involved, with a stated minimum unit of time. Disbursements — courier costs, IT extraction, external counsel, travel — should be recoverable at cost. Where the firm anticipates a material workstream, the engagement letter can provide for a retainer or an up-front estimate, refreshed at agreed intervals.

A common mistake is to bury this in a generic "additional services" clause. The client should see the mechanism at the point of engagement, not at the point of invoice. A short, plain-English paragraph in the fee section — explaining that regulatory cooperation is outside the fixed fee and will be charged at the rates in Schedule 2 — is more effective than a dense clause in the boilerplate.

Scope control when the regulator sets the timetable

Regulators set deadlines; firms do not. The engagement letter should therefore include a change control mechanism that works at speed: a written scope note, an estimate of hours by grade, and a client approval process that can operate by email within a stated period. Where the client cannot approve in time, the firm should be entitled to take reasonable steps to preserve the client's position and to charge for them.

The clause should also address the situation where the request expands beyond its original terms. A supplementary request, a follow-up interview or a second regulator should trigger a fresh scope note rather than an assumption that the original estimate still holds. This is not an opportunity to reprice; it is a discipline that keeps both sides informed.

Make the clause visible before it is needed

The most carefully drafted clause will fail if it is introduced after the request lands. Firms should raise the point at onboarding, alongside the other commercial terms, and explain it in the same tone as the fee estimate: this is how we protect your position and ours if a regulator asks for our help. Clients who understand the mechanism in advance are far less likely to dispute it when the invoice arrives.

In 2026, with regulators increasingly willing to test the boundaries of their information powers, the question is not whether a firm will be asked to cooperate. It is whether the engagement letter has already decided who pays for it.