Solicitors carrying on financial services business could soon be authorised by the Financial Services Authority and not the Law Society, under a preferred system proposed by the government.Following representations by the Society, and others, the Treasury has now issued a consultation paper in which its present thinking is set out and on which the Law Society is invited to comment.

The consultation paper is an ideas document, with little detail, and while it is encouraging, there remains much to be discussed and clarified.

The main thrust of the Law Society case has been to try and avoid the need for firms to seek precautionary authorisation with the FSA, lest they transgress regulations, and so be involved in unnecessary expense and compliance over and above their ongoing professional obliga tions.A reminder of the present position helps put the present proposals into perspective.

The Financial Services Act 1986 defines and provides for the regulation of investment business unless it falls within an exclusion.

Investment business must involve an investment and an investment activity as defined.

All investment business is discrete investment business (DIB) unless it is subject to an exception when it becomes non-DIB.

The main burden of compliance falls on DIB, which is often referred to as mainstream investment business, but all investment business requires authorisation.

The main exceptions from DIB are for investment business which is incidental to legal business, where a permitted third party, such as a stockbroker, is instructed to carry out the mainstream investment business, and where the dealing or arranging is on an execution only basis.Insofar as the need for authorisation for non-DIB may be reduced, much unnecessary expense and time will be saved, while the client remains adequately protected by professional rules and regulations.

Investment activities in the new legislation are likely to include:-- dealing in investments;-- arranging deals in investments;-- safekeeping and administration of assets;-- managing investments;-- investment advice.The consultation paper suggests operating on the definition of activities to avoid the need for precautionary authorisation.Arranging deals in investments: These might only be caught if they actually bring about a transaction.Managing: This is likely to be limited to discretionary management.Advising: Generic advice will be defined and not require authorisation.

It should be possible to question advice given by a permitted third party.Safekeeping: No mention is made of safekeeping of assets in the paper, and here there is need for further consideration or strongrooms will be emptied across the landAlso considered is the widening of present exclusions and the possibility of removing some non-DIB work from the need for authorisation.EXCLUSIONS UNDER THE ACTNecessary activities (the Act Schedule paragraph 24)This is an exclusion and not at all the same as the present incidental exception from DIB.

The idea of what is necessary for the performance of professional duties could usefully be widened and there are plans to do this and possibly for hourly charging not to be classed as separate remuneration.Sale of body corporate (the Act Part III Schedule 1)This exclusion might no longer be tied to 75% of voting rights but would cover any deal where its purpose relates to the sale of a body corporate as a going concern rather than as an investment.Acting as trustee or personal representativeThis exclusion is likely to be extended to cover at least another partner or employee assisting in the workEXCEPTIONS FROM DIBIt is hoped that the permitted third party and execution only exceptions will be extended so as not to constitute investment business at all.So consultation is moving in the right direction for the client and the solicitor, but it would not do to be too optimistic yet.Investment business certificate fees at £210 per firm and £70 per partner now bring in £3.5 million worth of income for the Law Society and this gives some indication of the potential savings in time and money if precautionary authorisation can be avoided or minimised for those firms not doing mainstream investment business.