FSA in crime threat to lawyers

Solicitors will face criminal sanctions if they fail to grasp regulatory changes on investment advice and act outside their authority once the Financial Services Authority (FSA) comes into force, they were warned last week.

The warning followed publication by the Treasury of a host of key documents setting out the type of work solicitors will be permitted to do under the new regime.

Activities excluded from FSA regulation entirely include acting as a trustee where firms are not paid for investment advice, advising companies on the acquisition or disposal of shares, and advice necessary to providing legal services - an exclusion which Ian Muirhead, director of Solicitors for Independent Financial Advice, said solicitors would rarely be able to call on.

Through the Law Society, the FSA will maintain 'indirect oversight' of firms undertaking exempt activities.

To be exempt solicitors must be members of the Society, receive no remuneration for investment advice other than from clients, and may not hold themselves out as authorised to give the advice.

Any advice given will also only be exempt if incidental to the provision of legal services.

Examples of exempt activities include: arranging deals through authorised third parties, holding client documents and giving generic advice, for example on the benefits and drawback of endowment policies.

Alison Crawley, the Society's head of professional ethics, said it could now start drafting the important rules and guidance which would inform solicitors about what they could and could not do.

However, she warned that the profession would have to 'sit up and take notice on peril of indulging in a criminal act' if they step over the line in giving investment advice.

Mr Muirhead said that although the draft orders and regulations are 'fairly sensible and straightforward', there is no getting over the fact that solicitors would lose the benefit of precautionary authorisation which had protected them in the past if they strayed over the line.

Sue Allen