Regulated financial services activities

Updated 19 July 2017

We recently asked COLPs and authorised signatories at firms we regulate to let us know whether or not they carry out financial activities for clients as part of their firms' legal work.

While that exercise is now substantially complete, we have contacted COLPs and nominated authorised signatories at some firms with follow-up questions and instructions. The guidance below is specifically addressed to them.

What you need to do

We have emailed you a hyperlink to a downloadable Financial Services Notification form.

Please complete the form and and return it to us by 28 July 2017.

Why this information is important

Any organisation that carries out regulated financial services activities must be listed on the relevant Financial Conduct Authority (FCA) register.

If your firm carries out regulated financial services activities under our regulation through an FCA exemption, you need to tell us about what you do so that we can provide accurate information to the FCA.

If you do provide financial services, being on the FCA register is important. Other businesses – such as lenders or credit agencies – might refuse to work with you if they cannot verify that you are regulated or are exempt to carry out such activities.

We are asking for this information now as our analysis shows that reporting during our annual firm licence and practising certificate renewal exercise is inconsistent, and some firms do not realise that what they are doing includes work that is regarded as a financial services activity. It's a complex area, and the information we keep on record must be correct.

Find out things you need to know to help you report this information.

Your questions

What are regulated financial services activities?

The regulated financial services activities are set out and explained in Part 2 of The Financial Services and Markets Act 2000 (FSMA) and include:

  • dealing in, arranging, advising on, assisting in the administration of, and making arrangements with a view to carry out, contracts of insurance
  • consumer credit activities
  • setting up stakeholder pension schemes
  • investments: advising, dealing in or managing, arranging deals, safeguarding and administering
  • setting up collective investment schemes
  • home finance – mortgages: arranging, advising on, entering into and administering
  • providing basic advice on stakeholder products
  • Lloyd's market activities
  • operating a multilateral trading facility
  • sending dematerialised instructions (electronic transfer of title in investments like securities and contractually based investments)
  • entering funeral plan contracts
  • issuing e-money
  • agreeing to do most of the above activities.

The FCA provides a complete list of the regulated financial services activities in its Handbook glossary.

How can law firms carry on financial services activities?

The Financial Services and Markets Act 2000 (FSMA) allows firms to carry out certain financial activities, if they are:

  • Authorised and regulated by the FCA (known as Authorised Professional Firms) or they become an appointed representative of another FCA firm.
  • Authorised and regulated by a Designated Professional Body (DPB), such as the SRA, under Part 20 of FSMA (known as an exempt professional firm (EPF)).
  • Able to rely on a statutory exclusion, meaning that the activity is not a regulated financial activity. For example, certain consumer credit activities, such as debt collecting, will be excluded from regulation under FSMA where the activities are undertaken by solicitors (or other persons authorised under the Legal Services Act 2007) in the course of providing advocacy services or litigation services.
 

As a firm you need to determine whether or not you need to be authorised by the FCA or can rely on Part 20 of FSMA.

What is Part 20?

Part 20 of FSMA makes a special provision for professional firms that do not carry out mainstream financial services activities, but which carry on regulated financial services activities (known as exempt regulated activities) in the course of other work, such as conveyancing, matrimonial, personal injury and trust work.

Can I be authorised by the FCA and rely on Part 20 of FSMA at the same time?

No. Firms cannot be authorised by both the FCA and a DPB at the same time. You are either authorised or exempt. Depending on how you carry on financial services activities will determine which camp you fall in.

How does Part 20 apply?

Part 20 has two key provisions relevant to SRA-authorised firms:

  • FSMA - regulated activities may be carried out by a member of the profession who is not authorised by the FCA where the regulated activity "...arises out of, or is complementary to, the provision of a particular professional service to a particular client..." (s332(4) of FSMA)
  • the regulated activity "...must be incidental to the provision by him of professional services..." (s327(4) of FSMA).

So, for example, you might have:

  • arranged for after the event insurance for a personal injury or conveyancing client
  • provided debt counselling in respect of joint credit card debts in a matrimonial matter
  • advised a client on how they should invest monies when advising on a will or probate matter.

As the financial services activities arise out of or are complementary to the service you provide to your client, and are incidental to the firm's legal/professional activities, you will be able to rely on Part 20 and, therefore, fall into the category of an EPF.

How is Part 20 engaged?

For firms to be able to rely on Part 20, we must have rules that govern the carrying out of regulated financial services activities by EPFs. These are:

The SRA Financial Services (Scope) Rules 2001 set out the scope of the financial services activities which may be undertaken by EPFs.

What do the rules do?

The rules specifically:

  • prohibit firms that are not authorised and regulated by the FCA from carrying on certain regulated activities
  • set out the basic conditions firms must satisfy when carrying out any regulated activities
  • set out other restrictions on regulated activities carried on by those firms.

If you undertake a regulated activity that falls outside the scope of our regime, and you are not authorised by the FCA, you may be committing a criminal offence. It is therefore imperative that you understand the activities which may be undertaken when relying on our rules and those which may not.

The COB Rules regulate the way in which firms carry out such exempt regulated activities - there are some key requirements that firms have to comply with if they carry on insurance distribution activities or consumer credit activities.

The Scope and COB Rules should be considered in parallel with obligations set out in the SRA Principles and the SRA Code of Conduct.

Are there any tools to help me assess if my firm can rely on Part 20?

Yes. You can go through our decision tree to help you assess whether or not you can rely on Part 20.

What else do I need to do?

If, on your assessment, you are satisfied that you can rely on Part 20 (as an EPF) and comply with the SRA's Scope and COB Rules, then you should notify us and confirm the financial activities that the firm carries on.

If you arrange or advise on an insurance product for your client, your firm will need to have appointed an insurance distribution officer (IMO) and told us who that person is. The IMO does not need to be approved by us as a role holder and, in most firms, the person will be the firm's Compliance Officer for Legal Practice (COLP).

Why do I need to let you, the SRA, know?

The FCA maintains a published register, which includes details about firms it authorises and EPFs.

We and other DPBs provide information to the FCA on a weekly basis, which is then used to update the register.

In addition, as a DPB, we are obliged to keep the FCA informed about the way in which we supervise and regulate EPFs. We must provide the FCA with "...the number of exempt professional firms..." and "...the range and scope of exempt regulated activities carried on by its exempt professional firms...".

What is the purpose of this register?

The register assists the public and businesses to find out whether a firm they are using, or plan to use, is authorised, registered by the Prudential Regulation Authority (PRA) and/or FCA, or is exempt.

Do corporate partners in a firm have to complete the questionnaire?

Yes. How corporate partners work and the activities they carry on is varied. So if the corporate partners are authorised bodies in their own right then they should respond to the questionnaire.

Can my firm be an appointed representative?

Chapter 6 of the SRA Code of Conduct 2011 focuses on requirements for ensuring that a firm’s independence is preserved when engaging with third parties/recommending third parties to your client and that you act in the client's best interests. The indicative behaviours in Chapter 6 read:

“...Acting in the following way(s) may tend to show that you have not achieved these outcomes and therefore not complied with the Principles:

IB(6.5) entering into any arrangement which restricts your freedom to recommend any particular business, except in respect of regulated mortgage contracts, general insurance contracts or pure protection contracts;

IB(6.6) being an appointed representative...”.

Download form

The notification form is an editable PDF document. You need the latest version of the PDF viewer to download this document. You need to fill it in electronically. You should save the form before you start completing it.

Help deciding

Do you need to be authorised by the Financial Conduct Authority or are you an Exempt Professional Firm?

If you think your firm might be carrying out regulated financial services activities, you can use our interactive decision tool to help you decide what kind of authorisation you need.

Download decision tree (PDF 1 page, 84K)

Help me decide

Are you, or will you be, carrying on a regulated financial activity, or involved with specific investments?

(see definition of regulated activities and Part 3 of the Regulated Activities Order)


 

Examples

Listed below under relevant areas of legal practice are a range of examples of SRA-regulated financial services activities that your firm might carry on. If your firm does carry on any of these activities, you need to let us know when you complete the online form. Your firm will be registered as an exempt professional firm under Part 20 of the Financial Services and Markets Act 2000. The list is not comprehensive.

Practice area
Arbitration and alternative dispute resolution (ADR)
Financial services activity
Administering a specified benchmark
Example
You are involved in a long standing commercial dispute between two companies and act for one who is concerned about how certain investments were managed. In order to progress matters and help reach a settlement you agree that you will collect, analyse and process information provided for the purpose of determining a specified benchmark for example, Sterling Overnight Index Average (SONIA); Repurchase Overnight Index Average (RONIA); WM/Reuters.
Practice area
Criminal
Financial services activity
Debt counselling
Example
You act for a client that has outstanding debts and they ask for advice on how their debts could be consolidated before they are sentenced.
Practice area
Employment
Financial services activity
Credit broking
Example
After discussing fee arrangements with your client, you refer the client to a lender who provides the client with funds to pay your firm's fees and then repays the lender by instalments.
Practice area
Family/matrimonial litigation
Financial services activity
Advising on investments
Example
You are acting for a client in divorce proceedings and you advise on the transfer of shares in a company (private or public).
Practice area
Immigration
Financial services activity
Arranging (bringing about) regulated mortgage contracts
Example
Your client has recently been granted indefinite leave to remain in the UK and seeks assistance in establishing himself and securing a place to stay. You approach a mortgage broker on behalf of your client with a view to making arrangements for your client to enter into a regulated mortgage contract as borrower.
Practice area
Litigation
Financial services activity
Advising on peer to peer (P2P) agreements
Example
You have been instructed by a client that does not qualify for legal aid and other fee arrangements are not suitable. You advise the client that other sources of funding should be considered. The client advises that he wishes to set up an online crowd-funding platform and asks you to advise on the terms and conditions.
Practice area
Personal injury
Financial services activity
Carrying on insurance distribution activities
Example
Your client has been involved in an accident at work and when funding arrangements are discussed it is noted that funds might not be available to cover third party costs in the event that the claim is unsuccessful. You discuss options with your client and arrange for an after-the-event (ATE) insurance policy to be put into place.
Requirement for role holder
Firm will need to ensure that they have appointed an insurance distribution officer before they carry on the activity
Practice area
Planning
Financial services activity
Entering into a regulated credit agreement as lender (where the loan to the client is for fees and disbursements due to the firm)
Example
Your are involved in seeking planning permission for your client so that properties can be built on what is currently classed as a conservation area. You have agreed with your client that your firm's fees will be paid in stages including the payment of disbursements. You bill your client however, they advise that they cannot pay. You agree to make a loan to your client so that fees can be paid for and enter into a regulated credit agreement.
Practice area
Property (conveyancing)
Financial services activity
Carrying on insurance distribution activities
Example
You are instructed on the sale of a property and during the course of the retainer you advise your client there may be issues that could impact on effective transfer of title to the buyer. You agree with the client that you will arrange for a defective title/restrictive covenant indemnity insurance policy to ensure that your client can sell with good title. Sometimes a purchaser will require an indemnity insurance policy as it a condition of their mortgage.
Requirement for role holder
Firm will need to ensure that they have appointed an insurance distribution officer before they carry on the activity
Practice area
Wills, trusts and tax planning
Financial services activity
Making arrangements with a view to a home reversion plan
Example
You act as a trustee and on behalf of the beneficiaries you have been asked to administer a home reversion plan. This is a type of equity-release scheme that lets the seller (the beneficiaries) use some of the money that’s tied up in their home. These plans are used for example, to pay for long-term care where the seller is looking to stay in the home.

Who to contact

For more guidance on regulated financial services activities, contact our Professional Ethics helpline.

 

Please use www.sra.org.uk/financial to link to this page.