Almost 6,000 law firms have been registered with the Financial Services Authority (FSA) for carrying out 'insurance mediation' activities, it emerged this week, but there are fears that many others are opening themselves up to criminal prosecution by failing to get to grips with the issue.

In January, the FSA assumed regulation of general insurance business and solicitors who advise on or arrange a whole host of contracts of insurance are covered.


These include after-the-event insurance, life policies, pension policies, defective title and restrictive covenant indemnity, missing beneficiary indemnity, unoccupied property indemnity, household and buildings insurance, and long-term care insurance.


According to Jonathan Davies, a partner at City firm Reynolds Porter Chamberlain, the only firms that would be unaffected are likely to specialise solely in criminal law.


Under the designated professional body regime, solicitors are overseen by the Law Society, rather than the FSA, but must be included on the FSA's register of exempt professional firms.


The Society asked law firms whether they needed to be registered during last year's practising certificate renewal exercise, but a lower number of firms than expected requested it. As a result, Chancery Lane adopted a temporary position earlier this year to protect firms by putting them all on the register. It wrote again to all those which said they did not conduct insurance mediation or ignored the question.


As a result, there are now 5,773 firms on the FSA register, 56% of all practices - leading both Mr Davies and Alison Matthews, the compliance officer at national firm Irwin Mitchell, to speculate that plenty have failed to register.


A Law Society spokeswoman said: 'Those firms who did not contact us by the end of March have now been removed from the register and they should not be carrying out insurance mediation activities. However, they can elect to go back on at any time.'


Unregistered firms conducting insurance mediation commit a criminal offence.


The FSA has stated that it will police 'the perimeter' of the new regime, Mr Davies said. This was likely to mean that it will check insurers and brokers have systems in place to ensure they do not deal with unauthorised firms - solicitors could therefore find they are unable to place insurance for their clients.


Saying that 'in some respects, this is one of the worst things that's ever come up', Ms Matthews said once firms are on the register, they then have to tackle compliance issues.


Firms need to have a compliance officer and also look at whether the product they are offering is appropriate to the particular client, providing a 'demand and needs' statement.