Change tracker – Solicitors' Financial Services (Scope) Rules 2001

2008-07-14
 

The Solicitors' Financial Services (Scope) Rules 2001 remain in force after the 6 October 2011, but this page will no longer be updated. Please use the new SRA Handbook.

Go to SRA Handbook

The Solicitors' Financial Services (Scope) Rules 2001 were amended on 20 January 2010 to reflect regulation of sale and rent back agreements and developments in corporate finance.

The Solicitors' Financial Services (Scope) Rules 2001 were amended on 31 March 2009 as part of a general updating of the rules to introduce firm-based regulation and legal disciplinary practices as provided for in the Legal Services Act 2007.

 

These rules, dated 18 July 2001, are made by the Council of the Law Society with the concurrence of the Master of the Rolls under section 31 of the Solicitors Act 1974, and section 9 of the Administration of Justice Act 1985 with the concurrence of the Master of the Rolls under those sections and the concurrence, where requisite, of the Lord Chancellor under paragraph 16 of Schedule 22 to the Legal Services Act 2007, regulating the practices of:

  • solicitors and recognised bodies in any part of the world,
  • registered European lawyers in any part of the United Kingdom, and
  • registered foreign lawyers in England and Wales,

in carrying out "regulated activities" in, into or from the United Kingdom.

1. Purpose

  • (1)

    The Law Society is a designated professional body under Part XX of the Act, and firms may therefore carry on certain regulated activities without being regulated by the FSA, if they can meet the conditions specified in section 327 of the Act. As a designated professional body the Law Society is required to make rules governing the carrying on by firms of regulated activities. The purpose of these rules is to set out the scope of the regulated activities which may be undertaken by firms which are not regulated by the FSA.

  • (2)

    These rules:

    • prohibit firms which are not regulated by the FSA from carrying on certain regulated activities;
    • set out the basic conditions which those firms must satisfy when carrying on any regulated activities;
    • set out other restrictions on regulated activities carried on by those firms.

2. Application

These rules apply only to firms which are not regulated by the FSA.

3. Prohibited activities

A firm must not carry on, or agree to carry on, any of the following activities:

  • (a)

    market making in investments;

  • (b)

    buying, selling, subscribing for or underwriting investments as principal where the firm:

    • (i)

      holds itself out as engaging in the business of buying such investments with a view to selling them;

    • (ii)

      holds itself out as engaging in the business of underwriting investments of the kind to which the transaction relates; or

    • (iii)

      regularly solicits members of the public with the purpose of inducing them, as principals or agents, to enter into transactions and the transaction is entered into as a result of the firm having solicited members of the public in that manner.

  • (c)

    buying or selling investments with a view to stabilising or maintaining the market price of the investments;

  • (d)

    acting as a stakeholder pension scheme manager;

  • (e)

    entering into a broker funds arrangement;

  • (f)

    effecting and carrying out contracts of insurance as principal;

  • (g)

    establishing, operating or winding up a collective investment scheme;

  • (h)

    establishing, operating or winding up a stakeholder pension scheme or a personal pension scheme;

  • (i)

    managing the underwriting capacity of a Lloyds syndicate as a managing agent at Lloyds;

  • (j)

    advising a person to become a member of a particular Lloyd's syndicate;

  • (k)

    entering as provider into a funeral plan contract;

  • (l)

    entering into a regulated mortgage contract as lender or administering a regulated mortgage contract (unless this is in the firm 's capacity as a trustee or personal representative and the borrower is a beneficiary under the trust, will or intestacy);

  • (m)

    entering into a regulated home purchase plan as provider or administering a regulated home purchase plan (unless this is in the firm's capacity as a trustee or personal representative and the home purchaser is a beneficiary under the trust, will or intestacy);or

  • (n)

    entering into a regulated home reversion plan as a provider or administering a regulated home reversion plan (unless this is in the firm's capacity as a trustee or personal representative and the reversion seller is a beneficiary under the trust, will or intestacy). or

  • (o)

    entering into a regulated sale and rent back agreement as an agreement provider or administering a regulated sale and rent back agreement (unless this is in the firm's capacity as a trustee or personal representative and the agreement seller is a beneficiary under the trust, will or intestacy).

4. Basic conditions

A firm which carries on any regulated activities must ensure that:

  • (a)

    the activities arise out of, or are complementary to, the provision of a particular professional service to a particular client;

  • (b)

    the manner of the provision by the firm of any service in the course of carrying on the activities is incidental to the provision by the firm of professional services;

  • (c)

    the firm accounts to the client for any pecuniary reward or other advantage which the firm receives from a third party;

  • (d)

    the activities are not of a description, nor do they relate to an investment of a description, specified in any order made by the Treasury under section 327(6) of the Act;

  • (e)

    the firm does not carry on, or hold itself out as carrying on, a regulated activity other than one which is allowed by these rules or one in relation to which the firm is an exempt person;

  • (f)

    there is not in force any order or direction of the FSA under sections 328 or 329 of the Act which prevents the firm from carrying on the activities; and

  • (g)

    the activities are not otherwise prohibited by these rules.

5. Other restrictions

  • (1)

    Packaged products (except personal pension schemes)

    A firm must not recommend, or make arrangements for, a client to buy a packaged product except where:

    • (a)

      recommending, or arranging for, a client to buy a packaged product by means of an assignment;

    • (b)

      the arrangements are made as a result of a firm managing assets within the exception to rule 5(4) below; or

    • (c)

      arranging a transaction for a client where the firm assumes on reasonable grounds that the client is not relying on the firm as to the merits or suitability of that transaction.

  • (2)

    Personal pension schemes

    • (a)

      A firm must not recommend a client to buy or dispose of any rights or interests in a personal pension scheme.

    • (b)

      A firm must not make arrangements for a client to buy any rights or interests in a personal pension scheme except where the firm assumes on reasonable grounds that the client is not relying on the firm as to the merits or suitability of that transaction but this exception does not apply where the transaction involves:

      • (i)

        a pension transfer; or

      • (ii)

        an opt-out.

  • (3)

    Securities and contractually based investments (except packaged products)

    • (a)

      A firm must not recommend a client to buy or subscribe for a security or a contractually based investment where the transaction would be made:

      • (i)

        with a person acting in the course of carrying on the business of buying, selling, subscribing for or underwriting the investment, whether as principal or agent;

      • (ii)

        on an investment exchange or any other market to which that investment is admitted for dealing; or

      • (iii)

        in response to an invitation to subscribe for an investment which is, or is to be, admitted for dealing on an investment exchange or any other market.

    • (b)

      This rule does not apply where the client is:-

      • (i)

        not an individual;

      • (ii)

        an individual who acts in connection with the carrying on of a business of any kind by himself or by an undertaking of which the client is, or would become as a result of the transaction to which the recommendation relates, a controller; or

      • (iii)

        acting in his capacity as a trustee of an occupational pension scheme.

  • (4)

    Discretionary management

    A firm must not manage assets belonging to another person in circumstances which involve the exercise of discretion except where the firm or a partner, officermanager or employee of the firm is a trustee, personal representative, donee of a power of attorney or deputy or receiver appointed by the Court of Protection, and either:

    • (a)

      all routine or day to day decisions, so far as relating to that activity, are taken by an authorised person with permission to carry on that activity or an exempt person; or

    • (b)

      any decision to enter into a transaction, which involves buying or subscribing for an investment, is undertaken in accordance with the advice of an authorised person with permission to give advice in relation to such an activity or an exempt person.

  • (5)

    Corporate finance

    A firm must not act as any of the following:

    • (a)

      sponsor to an issue in respect of securities to be admitted for dealing on the London Stock Exchange; or

    • (b)

      nominated adviser to an issue in respect of securities to be admitted for dealing on the Alternative Investment Market of the London Stock Exchange. or

    • (c)

      corporate adviser to an issue in respect of securities to be admitted for dealing on the PLUS Market.

  • (6)

    Insurance mediation activities

    • (a)

      Unless a firm is registered in the FSA Register it must not carry on any insurance mediation activities.

    • (b)

      Any firm undertaking insurance mediation activities must appoint a compliance officer whose details will be made known to the FSA and who will be responsible for the firm's insurance mediation activities.

  • (7)

    Regulated mortgage contracts

    A firm must not recommend a client to enter as borrower into a regulated mortgage contract but can endorse a recommendation given by an authorised person with permission to advise on regulated mortgage contracts or an exempt person in relation to the giving of such advice.

  • (8)

    Regulated home purchase plans

    A firm must not recommend a client to enter as home purchaser into a regulated home purchase plan with a particular person but can endorse a recommendation given by an authorised person with permission to advise on regulated home purchase plans or an exempt person in relation to the giving of such advice.

  • (9)

    Regulated home reversion plans

    A firm must not recommend a client to enter as reversion seller or plan provider into a regulated home reversion plan with a particular person but can endorse a recommendation given by an authorised person with permission to advise on regulated home reversion plans or an exempt person in relation to the giving of such advice.

  • (10)

    Regulated sale and rent back agreements

    A firm must not recommend a client to enter as agreement seller or agreement provider into a regulated sale and rent back agreement with a particular person but can endorse a recommendation given by an authorised person with permission to advise on regulated sale and rent back agreements or an exempt person in relation to the giving of such advice.

6. Effect of a breach of these rules

  • (1)

    The Solicitors Regulation Authority may exercise its statutory powers in respect of any firm which breaches these rules.

  • (2)

    In determining whether or not there has been a breach of these rules the Solicitors Regulation Authority will take account of whether the firm has given due regard to the guidance issued by the Law Society or the Solicitors Regulation Authority on how to determine whether regulated activities are carried on in accordance with these rules.

  • (3)

    A firm which breaches these rules may:

    • (a)

      be committing a criminal offence under section 23 of the Act; and

    • (b)

      be made subject to an order by the FSA under section 329 of the Act which could prevent the firm from carrying on any regulated activities.

7. Repeal and commencement

  • (1)

    These rules repeal the Solicitors' Investment Business Rules 1995.

  • (2)

    These rules come into force on 1 December 2001

8. Interpretation

  • (1)

    In these rules unless the context otherwise requires:

    • the Act means the Financial Services and Markets Act 2000;
    • agreement provider has the meaning given by article 63J(3) of the Regulated Activities Order read with paragraphs (6) and (7) of that article;
    • agreement seller has the meaning given by article 63J(3) of the Regulated Activities Order;
    • asset means an investment;
    • authorised person has the meaning given in section 31 of the Act;
    • broker funds arrangement means an arrangement between a firm and a life office (or operator of a regulated collective investment scheme) under which the life office (or operator of the regulated collective investment scheme) agrees to establish a separate fund whose composition may be determined by instructions from the firm and in which it is possible for more than one client to invest;
    • buy or buying includes acquiring for valuable consideration;
    • client, in relation to any regulated activities carried on by a firm for a trust or the estate of a deceased person (including a controlled trust), means the trustees or personal representatives in their capacity as such and not any person who is a beneficiary under the trust or interested in the estate;
    • collective investment scheme means (in accordance with section 235 of the Act (Collective Investment Schemes)) any arrangements with respect to property of any description, including money, the purpose or effect of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income, which are not excluded by the Financial Services and Markets Act (Collective Investment Schemes) Order 2001 (SI 2001/1062);
    • compliance officer means the individual within the management structure of the firm who is responsible for an insurance mediation activity;
    • contract of insurance means (in accordance with article 3(1) of the Regulated Activities Order) any contract of insurance which is a long-term insurance contract or a general insurance contract;
    • contractually based investment has the meaning given by article 3(1) of the Regulated Activities Order but does not include an investment which falls within the definition of a packaged product;
    • controller has the meaning given in section 422 of the Act;
    • employee means an individual who is employed in connection with the firm's regulated activities under a contract of service or under a contract for services such that he or she is held out as an employee or consultant of the firm;
    • exempt person means a person who is exempt from the general prohibition as a result of an exemption order made under section 38(1) or as a result of section 39(1) or 285(2) or (3) of the Act and who, in engaging in the activity in question, is acting in the course of business in respect of which that person is exempt;
    • FSA Register means the record maintained by the FSA as required by section 347 of the Act and including those persons that carry on, or are proposing to carry on, insurance mediation activities;
    • FSA means the Financial Services Authority;
    • firm means:
      • (a)

        a sole solicitor or registered European lawyer;

      • (b)

        a lawyers' partnership which includes at least one solicitor, registered European lawyer or recognised body, and which is permitted for practice in England and Wales by rule 12 of the Solicitors' Code of Conduct 2007;

      • (a)

        in England and Wales, a sole solicitor or registered European lawyer, or a partnership consisting of solicitors, registered European lawyers and/or recognised bodies with or without registered foreign lawyers and/or non-registered European lawyers;

      • (b)

        in Scotland or Northern Ireland, a sole solicitor or registered European lawyer, or a partnership consisting of solicitors, registered European lawyers and/or recognised bodies with or without non-registered European lawyers;

      • (c)

        outside the United Kingdom, a sole solicitor, or a partnership consisting of solicitors and/or recognised bodies;

      • (c)(d)

        a recognised body.

    • funeral plan contract has the meaning given in article 59 of the Regulated Activities Order;
    • general insurance contract is any contract of insurance within Part 1 of Schedule 1 to the Regulated Activities Order;
    • general prohibition has the meaning given in section 19(2) of the Act;
    • home purchaser has the meaning given by article 63F(3) of the Regulated Activities Order;
    • individual pension contract means a pension policy or pension contract under which contributions are paid to:
      • (a)

        a personal pension scheme approved under section 630 of the Income and Corporation Taxes Act 1988, whose sole purpose is the provision of annuities or lump sums under arrangements made by individuals in accordance with the scheme; or

      • (b)

        a retirement benefits scheme approved under section 591(2)(g) of the Income and Corporation Taxes Act 1988, for the provision of relevant benefits by means of an annuity contract made with an insurance company of the employee's choice;

    • Individual Savings Account means an account which is a scheme of investment satisfying the conditions prescribed in the Individual Savings Account Regulations 1998 (S.I. 998/1870);
    • insurance mediation activity means any of the following activities specified in the Regulated Activities Order which is carried on in relation to a contract of insurance or rights to or interests in a life policy:
      • (a)

        dealing in investments as agent;

      • (b)

        arranging (bringing about ) deals in investments;

      • (c)

        making arrangements with a view to transactions in investments;

      • (d)

        assisting in the administration and performance of a contract of insurance;

      • (e)

        advising on investments;

      • (f)

        agreeing to carry on a regulated activity in (a) to (e) above;

    • investment means any of the investments specified in Part III of the Regulated Activities Order;
    • investment trust means a closed-ended company which is listed in the United Kingdom or another member state and:
      • (a)

        is approved by the Inland Revenue under section 842 of the Income and Corporation Taxes Act 1988 (or, in the case of a newly formed company, has declared its intention to conduct its affairs so as to obtain approval); or

      • (b)

        is resident in another member state and would qualify for approval if resident and listed in the United Kingdom;

    • investment trust savings scheme means a dedicated service for investment in the securities of one or more investment trusts within a particular marketing group (and references to an investment trust savings scheme include references to securities to be acquired through that scheme);
    • ISA means an Individual Savings Account;
    • life office means a person with permission to effect or carry out long term insurance contracts;
    • life policy means a long term insurance contract other than a pure protection contract or a reinsurance contract, but including a pension policy;
    • LLP means a limited liability partnership incorporated under the Limited Liability Partnership Act 2000;
    • long-term care insurance contract has the meaning given in article 1 of the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment)(No 2) Order 2003;
    • long-term insurance contract has the meaning given in Part II of Schedule 1 to the Regulated Activities Order;
    • manager means:
      • (i)

        a partner in a partnership;

      • (ii)

        a member of an LLP; or

      • (iii)

        a director of a company;

    • market making means where a firm holds itself out as willing, as principal, to buy, sell or subscribe for investments of the kind to which the transaction relates at prices determined by the firm generally and continuously rather than in respect of each particular transaction;
    • non-registered European lawyer means a member of a profession covered by the Establishment of Lawyers Directive 98/5/EC who is based entirely at an office or offices outside England and Wales and who is not a solicitor, registered European lawyer or registered foreign lawyer;
    • occupational pension scheme means any scheme or arrangement which is comprised in one or more documents or agreements and which has, or is capable of having, effect in relation to one or more descriptions or categories of employment so as to provide benefits, in the form of pensions or otherwise, payable on termination of service, or on death or retirement, to or in respect of earners with qualifying service in an employment of any such description or category;
    • officer means a director or secretary of a recognised body which is a company, or a member of a recognised body which is a limited liability partnership;
    • opt-out means a transaction resulting from a decision by an individual to opt out of or decline to join a final salary or money-purchase occupational pension scheme of which he or she is a current member, or which he or she is, or at the end of a waiting period will become, eligible to join, in favour of an individual pension contract or contracts;
    • packaged product means a life policy, a unit or share in a regulated collective investment scheme, or an investment trust savings scheme whether or not held within an ISA or PEP, or a stakeholder pension scheme;
    • partner and partnership refer only to an unincorporated firm and not to a firm which is incorporated as a limited liability partnership;
    • pension contract means a right to benefits obtained by the making of contributions to an occupational pension scheme or to a personal pension scheme, where the contributions are paid to a regulated collective investment scheme;
    • pension policy means a right to benefits obtained by the making of contributions to an occupational pension scheme or to a personal pension scheme, where the contributions are paid to a life office;
    • pension transfer means a transaction resulting from a decision by an individual to transfer deferred benefits from a final salary occupational pension scheme, or from a money-purchase occupational pension scheme, in favour of an individual pension contract or contracts;
    • PEP means a personal equity plan within the Personal Equity Plan Regulations 1989;
    • personal pension scheme means any scheme or arrangement which is not an occupational pension scheme or a stakeholder pension scheme and which is comprised in one or more instruments or agreements, having or capable of having effect so as to provide benefits to or in respect of people on retirement, or on having reached a particular age, or on termination of service in an employment;
    • plan provider has the meaning given by article 63B(3) of the Regulated Activities Order read with paragraphs (7) and (8) of that article;
    • professional services means services provided by a firm in the course of its practice and which do not constitute carrying on a regulated activity;
    • pure protection contract:
      • (1)
      • (a)

        under which the benefits are payable only in respect of death or of incapacity due to injury, sickness or infirmity;

      • (b)

        which provides that benefits are payable on death (other than a death due to accident) only where the death occurs within ten years of the date on which the life of the person in question was first insured under the contract, or where the death occurs before that person attains a specified age not exceeding 70 years;

      • (c)(b)

        which has no surrender value or the consideration consists of a single premium and the surrender value does not exceed that premium; and

      • (d)(c)

        which makes no provision for its conversion or extension in a manner which would result in its ceasing to comply with (a), or (b) and (c); or

      • (2)

        a reinsurance contract covering all or part of a risk to which a person is exposed under a long-term insurance contract;

    • recognised body means a partnership, company or LLP recognised by the Solicitors Regulation Authoritybody corporate recognised under section 9 of the Administration of Justice Act 1985;
    • registered European lawyer means a person registered by the Solicitors Regulation Authoritywhose name is on the register of European lawyers maintained by the Law Society under regulation 175 of the European Communities (Lawyer's Practice) Regulations 2000;
    • registered foreign lawyer means a person registered under section 89 of the Courts and Legal Services Act 1990;
    • Regulated Activities Order means the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;
    • regulated activity means an activity which is specified in the Regulated Activities Order;
    • regulated collective investment scheme means:
      • (a)

        an investment company with variable capital;

      • (b)

        an authorised unit trust scheme as defined in section 237(3) of the Act; or

      • (c)

        a scheme recognised under sections 264, 270 or 272 of the Act;

    • regulated home purchase plan has the meaning given by article 63F(3) of the Regulated Activities Order;
    • regulated home reversion plan has the meaning given by article 63B(3) of the Regulated Activities Order;
    • regulated mortgage contract has the meaning given by article 61(3) of the Regulated Activities Order;
    • reinsurance contract means a contract of insurance covering all or part of a risk to which a person is exposed under a contract of insurance
    • regulated sale and rent back agreement has the meaning given by article 63J(3) of the Regulated Activities Order;
    • reversion seller has the meaning given by article 63B(3) of the Regulated Activities Order;
    • security has the meaning given by article 3(1) of the Regulated Activities Order but does not include an investment which falls within the definition of a packaged product;
    • stakeholder pension scheme means a scheme established in accordance with Part I of the Welfare and Pensions Reform Act 1999 and the Stakeholder Pension Scheme Regulations 2000; and
    • transaction means the purchase, sale, subscription or underwriting of a particular investment.
  • (2)

    In these rules references to statutes, rules, codes or regulations, statements or principles etc. other than these rules include any modification or replacement thereof.

  • (3)

    As the context requires, other words and expressions shall have the meanings assigned to them by the Interpretation Act 1978, the Act and the Solicitors Act 1974.

  • (4)

    References in these rules to activities carried on by a firm include activities carried on by an individual as a sole principal, managerofficer or employee of the firm.