Financial services rules raise fears of unnecessary red tape for law firmsLEGISLATION: Society warns of delays in transactions as promotions order announcedCity law firms could be forced into totally unnecessary regulation by the Financial Services Authority (FSA), following the publication last week of new rules governing...City law firms could be forced into totally unnecessary regulation by the Financial Services Authority (FSA), following the publication last week of new rules governing the promotion of financial services.

Concern arose after the financial promotions order part of a raft of secondary legislation supporting the Financial Services and Markets Act 2000 expected to come into force this autumn was published last week.

The order seeks to regulate organisations promoting financial services through material or other communication.

Despite two exemptions one covering face-to-face or telephone communications with a firms own client, and one dealing with one-off communications solicitors have expressed concern that communications with third parties via letters or the Internet, standard practice in many corporate deals, would force them to seek regulation by the FSA.

The alternative would be for firms to seek prior approval by an authorised person.

A Law Society spokeswoman said this would disrupt transactions and lead to additional costs and delay.

Tim Herrington, chairman of the Law Societys financial services sub-committee and partner at Clifford Chance, said firms could fall foul of the FSA regime by doing something as straightforward as sending out a sale and purchase agreement or an irrevocable undertaking to shareholders in a takeover, if such an activity was viewed as an invitation or inducement to recipients.

He said the alternative to regulation was for firms to stop issuing many of the documents common in corporate work and to have them sent via an authorised person a situation described by Mr Herrington as totally unacceptable and regulation for the sake of it.

He added that the financial promotions order should be brought in line with the regulated activities order, also published last week (see [2001] Gazette, 8 March, 5).

The Law Society spokeswoman said the impact of the provisions on clients, solicitors and the FSA warranted the withdrawal of the order.A Treasury spokesman said the provisions of the order been developed after extremely detailed consultation.Sue Allen