SRA Handbook

SRA Financial Services (Conduct of Business) Rules 2001

Version 20 of the Handbook was published on 1 October 2018. For more information, please click "History" above.

SRA Financial Services (Conduct of Business) Rules 2001

These rules, dated 18 July 2001, are made by the Solicitors Regulation Authority Board under sections 31, 79 and 80 of the Solicitors Act 1974, sections 9 and 9A of the Administration of Justice Act 1985 and section 83 of the Legal Services Act 2007, with the approval of the Legal Services Board under paragraph 19 of schedule 4 to the Legal Services Act 2007, regulating the practices of:

in carrying out regulated activities in the United Kingdom, for the purposes of the Financial Services and Markets Act 2000.

Part 1: RULES

Rule 1: Purpose
1.1

The Law Society is a designated professional body under Part XX of FSMA, and firms may therefore carry on certain regulated activities without being regulated by the FCA.

1.2

The SRA Financial Services (Scope) Rules 2001 set out the scope of the regulated activities which may be undertaken by firms which are not regulated by the FCA. These rules regulate the way in which firms carry on such exempt regulated activities.

Rule 2: Application
2.1

Where a firm is a licensed body, these rules apply only in respect of:

(a)

any reserved legal activity;

(b)

any non-reserved legal activity except, in relation to an MDP, any such activity that is excluded on the terms of the licence;

(c)

any other activity in respect of which the licensed body is regulated pursuant to Part 5 of the LSA.

2.2

Apart from rule 3 (status disclosure), these rules apply to:

(a)

firms which are not regulated by the FCA; and

(b)

firms which are regulated by the FCA but these rules only apply to such firms in respect of their non-mainstream regulated activities.

Rule 3: Status disclosure
3.1

This rule applies only to firms which are not regulated by the FCA.

3.2

A firm shall give the client the following information in writing in a manner that is clear, fair and not misleading before the firm provides a service which includes the carrying on of a regulated activity and in good time before the conclusion of a contract of insurance:

(a)

a statement that the firm is not authorised by the FCA;

(b)

the name and address of the firm;

(c)

the nature of the regulated activities carried on by the firm, and the fact that they are limited in scope;

(d)

a statement that the firm is authorised and regulated by the Solicitors Regulation Authority; and

(e)

a statement explaining that complaints and redress mechanisms are provided through the Solicitors Regulation Authority and the Legal Ombudsman;

3.3

Before a firm provides a service which includes the carrying on of an insurance distribution activity with or for a client, and in good time before the conclusion of a contract of insurance, it must state that it is an ancillary insurance intermediary and make the following statement in writing to the client in a way that is clear, fair and not misleading:

"[This firm is]/[We are] not authorised by the Financial Conduct Authority. However, we are included on the register maintained by the Financial Conduct Authority so that we can carry on insurance distribution activity, which is broadly the advising on, selling and administration of insurance contracts. This part of our business, including arrangements for complaints or redress if something goes wrong, is regulated by the Solicitors Regulation Authority. The register can be accessed via the Financial Conduct Authority website at www.fca.org.uk/firms/financial-services-register."

Notes

(i)

Where the status disclosure relates to insurance distribution activities then the statement in rule 3(3) must be used. The status disclosure need not be tailored to the needs of the individual client. The disclosures may be provided alongside or integrated with other material provided to the client. These disclosures may be made in the firm's client care letter or in a separate letter.

(ii)

Outcome (8.5) in Chapter 8 of the SRA Code of Conduct is that your letterhead, website and e-mails must show the words "authorised and regulated by the Solicitors Regulation Authority" which will assist in meeting the requirements of rule 3(2).

(iii)

The provisions of rule 3(2)(d) and rule 3(3) reflect the requirements of the outcomes in Chapter 1 of the SRA Code of Conduct in respect of complaints handling.

Rule 4: Execution of transactions
4.1

A firm shall ensure that where it has agreed or decided in its discretion to effect a transaction, it shall do so as soon as possible, unless it reasonably believes that it is in the client's best interests not to do so.

Note

(i)

Principle 4 sets out your duty to act in the best interests of the client. Accordingly, in cases where there is any doubt on the point, firms should ensure that transactions are effected on the best terms reasonably available.

Rule 5: Records of transactions
5.1

Where a firm receives instructions from a client to effect a transaction, or makes a decision to effect a transaction in its discretion, it shall keep a record of:

(a)

the name of the client;

(b)

the terms of the instructions or decision; and

(c)

in the case of instructions, the date when they were received.

5.2

Where a firm gives instructions to another person to effect a transaction, it shall keep a record of:

(a)

the name of the client;

(b)

the terms of the instructions;

(c)

the date when the instructions were given; and

(d)

the name of the other person instructed.

Note

(i)

It is not necessary for the firm to make a separate record. Normal file notes or letters on the file will meet the requirements of this rule provided that they include the appropriate information. If instructions are given or received over the telephone, an appropriate attendance note would satisfy this rule.

Rule 6: Record of commissions
6.1

Where a firm receives commission which is attributable to regulated activities carried on by the firm, it shall keep a record of:

(a)

the amount of the commission; and

(b)

how the firm has accounted to the client.

Notes

(i)

Any financial benefit has to be dealt with in accordance with Outcome (1.15) in Chapter 1 of the SRA Code of Conduct. However, firms should bear in mind that in the case of commissions attributable to regulated activities, firms must also comply with the requirements of the SRA Financial Services (Scope) Rules 2001, rule 4 (c).

(ii)

The record could be a letter or bill of costs provided the information is clear.

Rule 7: Safekeeping of clients' investments
7.1

Where a firm undertakes the regulated activity of safeguarding and administering investments, the firm must operate appropriate systems, including the keeping of appropriate records, which provide for the safekeeping of assets entrusted to the firm by clients and others.

7.2

Where such assets are passed to a third party:

(a)

an acknowledgement of receipt of the property should be obtained; and

(b)

if they have been passed to a third party on the client's instructions, such instructions should be obtained in writing.

Rule 8: Packaged products - execution-only business
8.1

If a firm arranges for a client on an execution-only basis any transaction involving a retail investment product, the firm shall send the client written confirmation to the effect that:

(a)

the client had not sought and was not given any advice from the firm in connection with the transaction; or

(b)

the client was given advice from the firm in connection with that transaction but nevertheless persisted in wishing the transaction to be effected; and in either case the transaction is effected on the client's explicit instructions.

Rule 9: Insurance distribution activities
9.1

Where a firm undertakes insurance distribution activities for a client, it must comply with appendix 1 to these rules.

Rule 9A: Credit-related regulated activities
9A.1

Where a firm undertakes credit-related regulated activities, it must comply with appendix 2 to these rules.

Rule 10: Retention of records
10.1

Each record made under these rules shall be kept for at least six years.

Note

(i)

The six years shall run from the date on which the relevant record has been made.

Rule 11: Waivers
11.1

In any particular case or cases the SRA shall have power to waive in writing any of the provisions of these rules, but shall not do so unless it appears that:

(a)

compliance with them would be unduly burdensome having regard to the benefit which compliance would confer on clients or third parties; and

(b)

the exercise of the power would not result in any undue risk to clients or third parties.

Note

(i)

For the avoidance of doubt, the SRA will not waive rules that implement any of the requirements of Directive (EU) 2016/97 on insurance distribution or Directive 2008/48/EC on credit agreements for consumers. See also the SRA's Waivers policy.

11.2

The SRA shall have power to revoke any waiver.

Rule 12: Commencement
12.1

These rules come into force on 1 December 2001.

12.2

[Deleted]

12.3

[Deleted]

12.4

[Deleted]

Rule 13: Interpretation
13.1

The SRA Handbook Glossary 2012 shall apply and, unless the context otherwise requires:

(a)

all italicised terms shall be defined; and

(b)

all terms shall be interpreted,

in accordance with the Glossary.

Notes

(i)

Whether a transaction is execution-only will depend on the existing relationship between the client and the firm and the circumstances surrounding that transaction. Generally, a transaction will be execution-only if the client instructs the firm to effect it without having received advice from the firm. Even though this is the case, however, the transaction may still not qualify as execution-only because, in view of the relationship, the client may reasonably expect the firm to indicate if the transaction is inappropriate. In any event, a firm may be negligent (and possibly in breach of Principle 4) if it fails to advise on the appropriateness or otherwise.

(ii)

A transaction will also be execution-only if the firm has advised the client that the transaction is unsuitable, but the client persists in wishing the transaction to be carried out. In those circumstances it is good practice (and in some cases a requirement) for the firm to confirm in writing that its advice has not been accepted, and that the transaction is being effected on an execution-only basis.

(iii)

Where the transaction involves a retail investment product, there is a specific requirement to confirm in writing the execution-only nature of a transaction (see Rule 8 above).

13.2

These rules are to be interpreted in the light of the notes.

Part 2: APPENDICES

APPENDIX 1: Insurance Distribution Activities
1 Communication and disclosure
1.1

A firm must ensure that, in relation to insurance distribution:

(a)

it communicates all information, including marketing communications, in a way that is clear, fair and not misleading.

(b)

its marketing communications are always clearly identifiable as such.

2 General information to be provided
2.1

In good time before the conclusion of a contract of insurance, a firm must disclose the following information to clients:

(a)

whether the firm provides a personal recommendation about the insurance products offered;

(b)

the procedures allowing clients and other interested parties to register complaints about the firm and information about the out-of-court complaint and redress procedures available for the settlement of disputes between the firm and its clients;

(c)

whether the firm is representing the client or acting for and on behalf of the insurer;

(d)

whether the firm has a direct or indirect holding representing 10% or more of the voting rights or capital in a relevant insurance undertaking;

(e)

whether a given insurance undertaking or its parent undertaking has a direct or indirect holding representing 10% or more of the voting rights or capital in the firm.

3 Scope of service
3.1

Where a firm proposes, or gives a client a personal recommendation for, a contract of insurance, then in good time before the conclusion of an initial contract of insurance and if necessary on its amendment or renewal, the firm must provide the client with information on whether the firm:

(a)

gives a personal recommendation on the basis of a fair and personal analysis;

(b)

is under a contractual obligation to conduct insurance distribution exclusively with one or more insurance undertakings, in which case the firm must provide the names of those insurance undertakings; or

(c)

is not under a contractual obligation to conduct insurance distribution exclusively with one or more insurance undertakings and does not give advice on the basis of a fair and personal analysis, in which case the firm must provide the names of the insurance undertakings with which the firm may and does conduct business.

3.2

If a firm informs a client that it gives a personal recommendation on the basis of a fair and personal analysis:

(a)

it must give that personal recommendation on the basis of an analysis of a sufficiently large number of insurance contracts available on the market to enable it to make that recommendation; and

(b)

that personal recommendation must be in accordance with professional criteria regarding which contract of insurance would be adequate to meet the client's needs.

4 Demands and Needs
4.1

Prior to the conclusion of a contract of insurance, a firm must specify on the basis of information obtained from the client, the demands and needs of that client.

4.2

The details must be adapted according to the complexity of the contract of insurance proposed and the individual circumstances of the client.

4.3

A firm must give the client a statement of the client's demands and needs prior to the conclusion of a contract of insurance.

4.4

Any contract of insurance proposed by the firm must be consistent with the client's demands and needs and where the firm has given a personal recommendation to the client, the firm must, in addition to the statement of the demands and needs, provide the client with a personalised explanation of why a particular contract of insurance would best meet the client's demands and needs.

5 Use of intermediaries
5.1

A firm must not use, or propose to use, the services of another person consisting of:

(a)

insurance distribution ;

(b)

reinsurance distribution ;

(c)

insurance distribution activity ; or

(d)

home finance mediation activity ;

unless the person in relation to the activity is:

(i)

registered in an EEA State for the purposes of the IDD; or

(ii)

in relation to insurance distribution activity, is not carrying this activity on in the EEA.

5.2

Before using the services of the intermediary, a firm must check:

(a)

the Financial Services Register; or

(b)

in relation to insurance distribution or reinsurance distribution carried on by an EEA firm, the register of its home state regulator,

and use the services of that person only if the relevant register indicates that the person is registered for that purpose.

6 Treating complaints fairly
6.1

In addition to the firm's obligations under O(1.9) and O(1.10) of the SRA Code of Conduct, the firm must have in place and operate appropriate and effective procedures for registering and responding to complaints from a person who is not a client.

7 Remuneration and the client's best interests
7.1

A firm must not:

(a)

be remunerated; or

(b)

remunerate or assess the performance of its employees;

in a way that conflicts with their duty to act in each client's best interest.

7.2

In particular, a firm must not make any arrangement by way of remuneration, sales target or otherwise that could provide an incentive to the firm or its employees to recommend a particular contract of insurance to a client when it could offer a different contract of insurance which would better meet its client's needs.

8 Remuneration disclosure
8.1

In good time before the conclusion of the initial contract of insurance and if necessary, on its amendment or renewal, a firm must provide the client with information:

(a)

on the nature of the remuneration received in relation to the insurance contract:

(b)

about whether in relation to the contract the firm works on the basis of:

(i)

a fee, that is remuneration paid directly by the client;

(ii)

a commission of any kind, that is remuneration included in the premium;

(iii)

any other type of remuneration, including an economic benefit of any kind offered or given in connection with the contract; or

(iv)

a combination of any type of remuneration set out above in (i), (ii) and (iii).

9 Fee disclosure: additional requirements
9.1

Where a fee is payable, a firm must inform the client of the amount of the fee before the client incurs liability to pay the fee, or before conclusion of the contract of insurance, whichever is earlier.

9.2

To the extent that it is not possible for the amount in paragraph 9.1 to be given, a firm must give the client the basis for its calculation.

9.3

This paragraph applies to all such fees that may be charged during the life of the policy.

10 Means of communication to clients
10.1

This paragraph applies to all information required to be provided to a client in this appendix.

10.2

A firm must communicate information to the client on paper or using any of the following means:

(a)

a durable medium other than paper where the following conditions are satisfied:

(i)

the use of a durable medium other than paper is appropriate in the context of the business conducted between the firm and the client; and

(ii)

the client has been given the choice between information on paper and on a durable medium other than paper and has chosen a durable medium other than paper; or

(b)

on a website (where it does not constitute a durable medium) where the following conditions are satisfied:

(i)

the provision of that information by means of a website is appropriate in the context of the business conducted between the firm and the client;

(ii)

the client has consented to the provision of that information by means of a website;

(iii)

the client has been notified electronically of the address of the website, and the place on the website where that information can be accessed; and

(iv)

the firm ensures that the information remains accessible on the website for such period of time as the client may reasonably need to consult it.

10.3

For the purposes of paragraphs 10.2(a)(i) and (b)(i), the provision of information using a durable medium other than paper or by means of a website shall be regarded as appropriate in the context of the business conducted between the firm and the client if there is evidence that the client has regular access to the internet. The provision by the client of an e-mail address for the purposes of that business is sufficient evidence.

10.4

A firm must communicate the information:

(a)

in a clear and accurate manner, comprehensible to the client;

(b)

in an official language of the Member State in which the insured risk, or proposed insured risk, is situated or in any other language agreed upon by the parties; and

(c)

free of charge.

10.5

Where a firm communicates the information using a durable medium other than paper or by means of a website, the firm must, upon request and free of charge, send the client a paper copy of the information.

10.6

A firm must ensure that a client's choice or consent to receive the information by means of a website (whether a durable medium or where the conditions under paragraph 10.2(b) are satisfied) is an active and informed choice or consent.

10.7

In the case of services supplied to the client by telephone that are subject to the Financial Services (Distance Marketing) Regulations 2004:

(a)

the information must be given in accordance with those regulations; and

(b)

if prior to the conclusion of the contract of insurance the information is provided:

(i)

orally; or

(ii)

on a durable medium other than paper;

the firm must also provide the information to the client in accordance with paragraph 10.2 immediately after the conclusion of the contract of insurance.

11 Cross-Selling requirements where insurance is the ancillary product
11.1

When a firm offers a non-insurance ancillary product or service as part of a package or in the same agreement with an insurance product, it must:

(a)

inform the client whether it is possible to buy the components separately and, if so must provide the client with an adequate description of:

(i)

the different components;

(ii)

where applicable, any way in which the risk or insurance coverage resulting from the agreement or package differs from that associated with taking the components separately; and

(b)

provide the client with separate evidence of the charges and costs of each component.

11.2

When a firm offers an insurance product ancillary to and as part of a package or in the same agreement with a non-insurance product or service, it must offer the client the option of buying the non-insurance goods or services separately.

11.3

Rule 11.2 does not apply where the non-insurance product or service is any of the following:

(a)

investment service or activities; or

(b)

a credit agreement as defined in point 3 of article 4 of the MCD which is:

(i)

an MCD credit agreement;

(ii)

an exempt MCD credit agreement;

(iii)

a CBTL credit agreement; or

(iv)

a credit agreement referred to in articles 72G(3B) and (4) of the Regulated Activities Order;

(c)

a payment account as defined in point 3 of Article 2 of Directive 2014/92/EU.

11.4

This paragraph shall not prevent the distribution of insurance products which provide coverage for various types of risks (multi-risk insurance policies).

11.5

In the cases referred to in paragraphs 11.1 and 11.2, the firm must still comply with other provisions in this appendix relating to the offer and sale of insurance products that form part of the package or agreement, including specifying the demands and needs of the client in accordance with paragraph 4.

12 Professional and organisational requirements
12.1

A firm must ensure that:

(a)

the firm and each relevant employee possesses appropriate knowledge and ability in order to complete their tasks and perform duties adequately; and

(b)

that all the persons in its management structure and any staff directly involved in insurance distribution activities are of good repute.

12.2

In considering a person's good repute, the firm must as a minimum ensure that the person:

(a)

has a clean criminal record or any other national equivalent in relation to serious criminal offences linked to crimes against property or other crimes related to financial activities; and

(b)

has not previously been declared bankrupt

unless they have been rehabilitated in accordance with national law.

13 Insurance Product Information Document and appropriate information
13.1

A firm must ensure that the client is given objective and relevant information about a policy in good time prior to the conclusion of the policy, so that the client can make an informed decision.

13.2

A firm must provide the information in paragraph 13.1 to the client:

(a)

whether or not it gives a personal recommendation; and

(b)

irrespective of the fact that the policy is offered as part of a package with:

(i)

a non-insurance product or service; or

(ii)

another policy.

13.3

A firm must ensure that the level of information provided takes into account the complexity of the policy and the individual circumstances of the client.

13.4

When dealing with a client who is an individual and who is acting for purposes which are outside his trade or profession the information provided under paragraph 13.1 must include an Insurance Product Information Document.

13.5

A firm must provide the information required in paragraph 13.4 by way of an Insurance Product Information Document for each policy (other than a pure protection contract).

13.6

Where a firm distributes contracts of insurance, it must have in place adequate arrangements to:

(a)

obtain from the manufacturer of the contract of insurance:

(i)

all appropriate information on the contract of insurance and the product approval process; and

(ii)

the identified target market of the contract of insurance; and

(b)

understand the characteristics and the identified target market of each contract of insurance.

14 Exclusions for large risks
14.1

Only paragraphs 1, 5, 6, 10, 11, 12 and 14 of this appendix apply where a firm carries on insurance distribution activities for commercial clients in relation to contracts of insurance covering risks within the following categories:

(a)

railway rolling stock, aircraft, ships (sea, lake, river and canal vessels), goods in transit, aircraft liability and liability of ships (sea, lake, river and canal vessels);

(b)

credit and suretyship, where the policyholder is engaged professionally in an industrial or commercial activity or in one of the liberal professions, and the risks relate to such activity;

(c)

(c) land vehicles (other than railway rolling stock), fire and natural forces, other damage to property, motor vehicle liability, general liability, and miscellaneous financial loss, in so far as the policyholder exceeds the limits of at least two of the following three criteria:

(i)

balance sheet total: €6.2 million;

(ii)

net turnover: €12.8 million;

(iii)

average number of employees during the financial year: 250.

APPENDIX 2: Credit-related Regulated Activities
1 Disclosure of information
(a)

Where a firm undertakes credit-related regulated activities for a client, it must ensure that information in connection with such activities and any agreements to which they relate is communicated to the client in a way that is clear, fair and not misleading.

(b)

Where a firm carries on the activity of credit broking, it must indicate in any advertising and documentation intended for consumers or clients the extent and scope of its credit broking activities, in particular whether the firm works exclusively with one or more lenders or as an independent broker.

2 Regulated credit agreements
(a)

Where a firm carries on a credit-related regulated activity involving a proposed regulated credit agreement, it must;

(i)

provide adequate explanations to the client in order to enable the client to assess whether the proposed regulated credit agreement is suitable to the client's needs and financial situation; and

(ii)

when providing such explanations, comply with the requirements of Article 5(6) of the Directive 2008/48/EC on credit agreements for consumers.

(b)

Before entering into a regulated credit agreement as lender, the firm must assess the client's creditworthiness on the basis of sufficient information to enable the firm to make the assessment, where appropriate such information will be obtained from the client and, where necessary, from a credit reference agency.

(c)

After entering into a regulated credit agreement where a firm is the lender, if the parties agree to change the total amount of credit, the firm must update the financial information the firm holds concerning the client and assess the client's creditworthiness before any significant increase in the total amount of credit.

(d)

In the event of a firm assigning to a third party its rights as lender in relation to a regulated credit agreement, the firm must inform the client of the assignment.

3 Appropriation of payments

Where a firm is entitled to payments from the same client in respect of two or more regulated credit agreements, the firm must allow the client to put any payments made, in respect of those agreements, towards the satisfaction of the sum due under any one or more of the agreements in such proportions as the client thinks fit.

4 Consumer Credit Guidance

Where a firm undertakes credit-related regulated activities, it must have regard to any guidance issued by the SRA from time to time relating to such activities.

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