Life as a solicitor has in recent years become dominated by acronyms: CPR, HRA, MDPs, LLPs and so on.

And now, for variety, figures have been thrown in too.N2 -- otherwise known as the Financial Services and Markets Act 2000 -- comes into force on 1 December and will gather all regulatory activity under the umbrella of the Financial Services Authority (FSA).This will be imbued with wide-ranging powers in both civil and criminal law to make sure those imparting financial advice keep within the law and avoid market abuses such as insider-dealing.While understanding the need to guard against market abuse, it is the issue of whether or not solicitors are engaged in mainstream financial advice that has made N2 such a cause for concern among solicitors.A smallish number are doing it willingly, and have applied for FSA regulation.

This opens firms up to stringent compliance check systems, designed to encourage best practice and protect clients' interests, and the accompanying costs of greater administration.Arguments have arisen in relation to large City firms, which maintain that, in effect, this has nothing to do with them.They argue that mainstream financial advice is not what they are about, save for that which is ancillary to their general commercial work.

Thus, with one major exception, Clifford Chance, none of the big firms has chosen to opt in to FSA regulation.Problems centre on the Act's Financial Promotion Order.

The Act includes several exemptions to suit solicitors but this part leaves major question marks over the nature of communications with clients and others.It suggests that such activities could constitute an 'invitation or inducement to engage in regulatory [investment] business'.This interpretation suggests solicitors are involved in mainstream investment advice, but many of them argue this will cover the whole gamut of their everyday work, if the activity is viewed as an invitation or inducement to recipients.

This could include communications with third parties via letters or e-mail, arranging and sending shareholders agreements, arranging meetings to discuss deals, sending out a sale and purchase agreement, and distributing an irrevocable undertaking to shareholders in a takeover.

In the worst of all worlds, firms would have to stop issuing such communications themselves and do it through an authorised person.As a partner in a leading firm, who does not want to be named, explains: 'To most people, investment advice would mean for instance telling someone which unit trust to buy.'But if you are advising somebody on a point of law, they might want to know how best to go about making a purchase of a firm.

Clearly, this could be argued to be either legal advice or investment services advice.'This issue has become intensely political, to the extent that several of those interviewed asked for anonymity.Many of the profession's leading firms have lobbied the Treasury, the government de partment sponsoring the Act, to give them exemptions in relation to the Financial Promotion Order.

So far, this has yielded no concessions.Michael Kent, a partner at City firm Linklaters, understands this reluctance: 'If the Treasury grants exemptions to solicitors, then others would be able to use them as a go-between to put out financial promotions.'The majority of City firms maintain that they need not opt in to FSA regulation; they merely need to tread carefully around its edges to avoid trouble.Ruth Fox, head of Slaughter and May's financial regulations group, explains: 'There are a patchwork of exemptions.

One can find a way through them and probably a home for all our activities.'On the plus side, she notes that the new law contains exemptions when communicating with both investment professionals and high net-worth clients, including public limited companies.Such clauses would appear to cover most of the clientele served by City lawyers.While many firms attempt to navigate around the exemptions, Clifford Chance has decided to adopt a safety-first approach and assume FSA registration.This has surprised many of its competitors, especially as the magic circle giant was at the forefront of the industry's efforts to lobby the Treasury.But Tim Herrington, head of Clifford Chance's global asset management group, stands firm and says there are sound reasons for bucking the trend.'I think authorisation by the FSA serves our clients' interests better, as we don't want them to be at risk by us promoting an unlawful communication.

We didn't want to be in a position where we could possibly be straying the wrong side of the law.'He adds that discussions are on-going with the government and is hopeful that some form of compromise will be reached.Many of Clifford Chance's competitors argue that a plethora of financial services Acts, not least that of four years ago, means they already have the necessary compliance and best practice factors in place.Philip Parish, a consultant in litigation at Linklaters, argues that firms are still preparing both themselves and their clients to take account of N2's implications even though they might not chose to opt in.He says: 'There is a large amount of internal training going on.

Everybody in the firm will have to have some working knowledge of the Act, but in reality it should not make a large change to the way we do things.'He adds that N2's implications will be most keenly felt in three areas -- regulatory work, merger and acquisition activity, and those litigators providing support for these functions.Specialist packages have been prepared for the firm's Blue Flag Web site to explain its implications to both clients and staff alike (see [2001] Gazette, 22 November, 13).Many of those who represent big City firms argue that they are not the real issue; rather it is the smaller firms.

It is these types of firms which are more likely to have mainstream financial advice as a large part of their activities.As one partner at a major City firm says: 'I suppose this is more likely to impact on that community of solicitors who are less likely to be aware of the problems, the smaller firms who do not have time to ingest the implications of this very lengthy new Act.'They are also less likely to be sufficiently resourced to deal with the new requirements.'Whatever the size of firm, all solicitors will need to quickly take on board the implications of N2, an Act that was subject to more than 1,000 amendments when passing through Parliament.

Furthermore, the Act is of such com plexity that it comes on stream two years behind schedule.In fact, the government's commitment to introducing N2 can be traced back to its earliest days in power.

Everyone remembers Chancellor Gordon Brown announcing that the Bank of England would be handed control of monetary policy, but the decision to proceed with N2 was announced at the same time.The first measure took effect almost immediately, but it has taken more than four years for N2 to become active.Debate on the Act will continue for some time in the legal world as theory is put into practice.

The government has set the rules, but it likely that these will continue to be challenged by law firms unhappy at the Financial Promotion Order.