The Solicitors' Investment Business (Custody) Amendment Rules 1997 (see [1998] Gazette, 'Custody of investments -- new rules', 28 January, 36-37, 41) effectively amend the Solicitors' Investment Business Rules 1995 (SIBR) with effect from 31 March 1998.

An up-to-date copy of SIBR to 1 June 1997 and a copy of the new custody rules are obtainable free of charge from the Law Society's professional ethics division at Ipsley Court, Berrington Close, Redditch.The new rules replace the old rule 17 of the SIBR and replace the old guidance note to sub-rule (5) of that rule by a new appendix 8.There are consequential amendments to the definition of rule 32 of the SIBR.ApplicationThe new rules apply to all firms authorised to conduct investment business were the firm provides custody services as defined in the new rules.

They do not apply to the provision of custody services where the firm or a partner, employee or officer of the firm is a personal representative or a trustee provided the firm is not separately remunerated for custody services.Unauthorised firmsAny firms not already authorised to conduct investment business should carefully note that if they provide custody services they need to be authorised; failure to become authorised can lead to dire consequences.Custody services.These are defined to mean the safeguarding and administering or arranging for the safeguarding and administering of assets belonging to another person, where those assets consist of, or include, investments as defined in the Financial Services Act 1986 ('the Act') so far as those custody services involve making or offering or agreeing to make arrangements with a view to another person buying, selling, subscribing for, or underwriting, a particular investment and no exclusion applies.

The relevant exclusions are set out in schedule 1 part III of the Act.There is a helpful guidance note to the new rules which makes it clear that mere holding of investments for safekeeping, perhaps in a strong-room, without any administration, does not amount to the provision of custody services.

Separate remuneration for holding in custody or releasing from custody will not affect the position, although it may affect the extent of the firm's responsibility under its retainer.ComplianceIf the firm is providing custody services and the new rules apply, the consequent obligations will be found set out in the new appendix 8 to the SIBR.

These amount to nothing more than good practice, and most firms already comply with most of the obligations.

They should be construed with common sense:Title: A firm must ensure that, whether title to the client's investments passes by registration or delivery, evidence of that title is maintained so that those investments are separately identifiable from investments belonging to the firm.

Where a client's investments are registrable they must be properly registered in the clients name or with the client's consent in the name of a nominee.

Unless the client, for the client's own convenience, instructs the firm in writing to register the client's investments in the name of another nominee, the nominee shall be the firm's own nominee.The firm's own nominee means a corporate nominee which is a recognised body either controlled by the firm or whose directors are accustomed to acting in accordance with the directions or instructions of the firm.

Where a nominee is used, care needs to be taken that there is appropriate evidence of the client's consent or instructions regarding the appointment of the nominee.Safekeeping: There are detailed provisions regarding the safekeeping of title documents.

There is nothing surprising here and, for example, the firm may not release title documents into the custody of another without the client's authority.

It is interesting that the definition of title documents in the new rules now includes a record on a register of investments held in uncertified form which is accepted as evidence of a client's title to that investment.Security and integrity of custody arrangements: The firm's security arrangements, including appropriate systems and controls must be adequate to safeguard the client's documents.

Arrangements will need to be appropriate to the value and risk of loss of the client's assets.Nominees and responsibilities as to custody services: Where the firm uses its own nominee it must ensure that the nominee only acts in accordance with the firm's instructions, and it must accept responsibility for its acts and omissions.As to custody services a firm must clarify in writing with its clients the actual services provided, and make clear the respective responsibilities of firm and client for:-- Recording, registering and identifying title to investments:-- Procedures for giving and receiving instructions;-- Provision of periodic statements;-- Liens;-- Use of the firm's own nominee, as above;-- Losses of client's investments;-- Appointment of sub-custodians and consequent responsibilities.If instructions are to be given or received over the telephone it would be advisable to identify who may give and receive them and perhaps how identity may be established.

The provision about liens needs to be carefully noted.There are exemptions from these custody services responsibilities where the activity is incidental (see SIBR 10(2)) or where the firm, a partner, employee or officer of the firm is acting as donee on a registered power of attorney.Recording and checking: A firm must record and check title documents in accordance with detailed requirements.Reporting: Unless the activity is incidental, or the firm, a partner, employee or officer of the firm is acting as donee on a registered enduring power of attorney or is a receiver appointed by the Court of Protection, an annual report of documents held must be given to the client.Any solicitor providing custody services should read the new custody rules carefully.