Question of ethics archive

Important: The guidance below was written and issued before the introduction of the SRA Handbook on 6 October 2011, and may refer to regulatory material that is no longer in effect. Although it may still be relevant, this guidance has not been rewritten in light of the wide-ranging regulatory changes implemented on 6 October 2011. Accordingly, it has been archived.

June 2010

Financial Services – EPF register

Q. I am acting in a personal injury case and the client has asked me to arrange an after the event insurance ("ATE") policy for her. I have contacted an insurance company and they have asked me for my EPF number. What is this and how do I find it?

In arranging an ATE policy you are carrying out an "insurance mediation activity". This term is used to describe any regulated activity in respect of an insurance-based product, from life policies and household insurance to defective title insurance and ATE policies.

If you are not authorised by the FSA, you can only arrange an insurance –based product if you comply with the Solicitor's Financial Services (Scope) Rules 2001 ("the Scope Rules"). Under rule 5(6) of the Scope Rules, your firm must not carry on any insurance mediation activities unless it is registered in the FSA Register. You would therefore need to be registered on the Exempt Professional Register (EPF) section of the FSA Register as your firm is not directly authorised by the FSA.

You can check if you are on the EPF Register by searching the FSA website. Please contact us if your firm's details do not appear; we will arrange this for you, but to do so we will need to know the name of your compliance officer whose details will also be published on the Register. Bear in mind that a breach of the Scope Rules is not only a disciplinary matter but also a breach of the Financial Services and Markets Act 2000. You must not therefore undertake any insurance mediation activities until your details appear on the Register.

Financial services - Arranging an insurance policy

Q. I am acting in a conveyancing transaction. I need to arrange a restrictive covenant indemnity insurance policy. What do I need to consider?

If your firm is not authorised by the FSA, you will need to comply with the Solicitors' Financial Services (Scope) Rules 2001 ("the Scope Rules").

Rule 4 of the Scope Rules sets out basic conditions which must be satisfied when you carry on regulated activities such as arranging a restrictive covenant indemnity policy ("the policy"). In particular:

  • Rule 4(a) – arranging the policy must arise out of the retainer you have with the client (so for example it is not appropriate to arrange a policy as a stand-alone activity);
  • Rule 4(b) – arranging the policy is incidental to the provision of the conveyancing service;
  • Rule 4(c) – if you receive any pecuniary reward (such as commission) from the policy provider or other third party, you must account to the client for this. This means that you must give your client detailed information about the payment. See also rule 2, guidance notes 58–61 of the Code, but note that the de minimis provision in rule 2.06 does not apply to this type of reward.

You should also bear in mind the following:

  • Your firm must be on the FSA Register (rule 5(6)) (see the question above);
  • The Solicitors' Financial Services (Conduct of Business) Rules 2001—in particular rule 3(3) and Appendix 1;
  • Your general duties in conduct including the requirements of rule 9.03 if you refer the client to a particular insurer.

Financial services - Statement of demands and needs

Q. I know that under Appendix 1 of the COB Rules, we need to provide our client with a statement of demands and needs when we recommend a restrictive covenant indemnity policy. Do you have a template?

No. It is not possible to provide a template because in order to comply with the rule, you need to tailor the statement to the needs of the individual client and reflect the complexity of the particular insurance contract being proposed. However, the following checklist may assist as a reminder of the points you should address in your statement of demands and needs:

Question Yes No
1 Does the statement identify why the client needs the particular type of insurance contract?    
2 Has the client identified any existing policy which may be of use? (eg does the client have any existing home contents policy which may include legal expenses insurance?)    
3 Does the statement include an explanation about what the client needs to disclose to the insurance provider?    
4 Does the statement include an assessment by the firm as to whether the level of cover is sufficient for the risks which the client wishes to insure?    
5 Does the statement identify and include an assessment of the relevance of any exclusions, excesses, limitations or conditions?    
6 If the firm has recommended the policy, does the statement include an explanation for the firm recommending that particular insurance contract?    

A written demands and needs statement is required whenever you arrange and/or recommend contracts of insurance for a client. As a general rule, the statement must be given to the client before the contract is finalised, but there are three exceptions to this:

  • Where the client asks for the information to be given orally;
  • Where immediate cover is required; and
  • Where the contract is concluded by telephone.

However, the information must still be provided to the client in writing immediately after the conclusion of the contract of insurance.