SRA Update
Financial services rules – sale and rent back agreements, PLUS market
SRA Update Issue 12 – February 2010
The Solicitors' Financial Services (Scope) Rules 2001 were amended on 20 January 2010 to reflect regulation of sale and rent back agreements as well as developments in corporate finance.
View amendments to the Financial (Scope) Rules 2001 with changes highlighted
Regulated sale and rent back agreements
Since July 2009, the Financial Services Authority (FSA) has been responsible for protecting the interests of consumers who sell, and rent back, their homes. Under the new arrangements, you should ensure that you deal only with providers who have been authorised to operate in this market by the FSA.
Typically, sale and rent back types of agreement are taken up by individuals in financial difficulties who sell their homes at a discount in return for the right to remain in them as a tenant. The rental agreement is often an assured shorthold tenancy, so the individual has limited security of tenure.
The FSA introduced a two-phased approach to regulating these agreements—with an interim phase operating from 1 July 2009 to 30 June 2010, and the full regime in force from 1 July 2010.
The Solicitors' Financial Services (Scope) Rules 2001 set out the scope of the regulated activities (in other words, financial services activities) that law firms can undertake if they are not authorised by the FSA. The amendments are as follows:
- Firms cannot enter into a regulated sale and rent back agreement as an agreement provider or administer a regulated sale and rent back agreement except where they are acting as a trustee or personal representative and where the agreement seller is a beneficiary under the trust, will or intestacy (rule 3(o)); and
- Firms cannot recommend that a client enters into a particular agreement (rule 5(10)), but they can:
- explain the agreement to the client and give advice provided that the advice does not amount to a recommendation to enter into the transaction;
- give negative advice, that is to advise the client not to enter into the agreement; and
- obtain advice from and/or endorse a recommendation given by an authorised or an exempt person.
PLUS corporate advisers
The PLUS market is an independent equity market that was granted Recognised Investment Exchange status by the FSA in July 2007. Companies seeking a quotation on the PLUS market must appoint and retain a PLUS corporate adviser. They are approved by PLUS and typically come from investment banks, accountancy practices and other specialist backgrounds.
Under the Financial Services and Markets Act 2000, anyone carrying on regulated activities (broadly, financial services activities) in the United Kingdom must either be authorised by the FSA or be exempt. Part XX of this Act enables solicitors' firms that meet certain conditions to be treated as exempt professional firms and to be able to carry on exempt regulated activities.
The Solicitors' Financial Services (Scope) Rules 2001 set out the scope of the exempt regulated activities that law firms can undertake if they are not authorised by the FSA and wish to rely on the Part XX exemption.
Rule 5(5)(c) has been added to the Scope Rules and restricts solicitors from acting as PLUS corporate advisers under the Part XX exemption. Anyone wishing to act as a PLUS corporate adviser will need to discuss their position with the FSA (www.fsa.gov.uk) and the PLUS Markets Group (www.plusmarketsgroup.com) and apply for authorisation as appropriate.
The Scope Rules are available on the SRA website. Visit www.sra.org.uk/financial-services. Help is available from our Ethics Guidance team.