All firms authorised by the Law Society which have conducted discrete investment business (DIB) in the area of pensions will have felt the impact of the Financial Services Authority's (FSA's) requirement to review past business.

Firms involved in the review will have followed a set procedure in reviewing cases as set down by Law Society Council statement document C, issued to the profession on 7 June 1995.Many firms will now be aware through media channels that the FSA has extended the scope of the review to cover younger investors and as a result, the Law Society has issued a further statement: Council statement document D.Document D is a mandatory Council statement requiring all firms which have engaged in DIB in the area of personal pensions to review past business that may have been excluded from the first phase of the review: the extension of the scope of the review is now commonly referred to asphase 2.Document D includes as one of its annexes model guidance as to how the second phase of the review should be conducted.

Document D (together with annexes) was mailed to all firms involved in phase 1 on 20 November.

All other authorised firms will have received a letter informing them of phase 2 and providing details of where the Council statement can be obtained.

For details of how to request document D, see below.Phase 2Phase 2 covers any pension transfer and opt-out/non-joiner business transacted between 29 April 1988 and 30 June 1994 that does not fall within the priority categories within phase 1.

These are detailed in annex 2 to document C.

Phase 2 also covers any investors who fall within the priority categories and who, having not previously responded to communications from the firm, die, retire or decide to request a review.The position regarding certain opt-out and non-joiner cases where consumers have taken out rebate-only plans is still to be decided by the FSA and further guidance will be issued by the Society regarding these policies as and when appropriate.Priority casesFirms involved in phase 1 will be well aware that the most important stage of the review is the identification of priority cases.

The importance of carrying out this stage of the review accurately and thoroughly cannot be over-emphasised.As with phase 1, the Society's monitoring and investigation unit (MIU) will make rigorous checks regarding the accuracy of a firm's identification process both through monitoring visits and on requests for information from the firm.As with phase 1, firms should initially aim to identify cases by reference to client files and their own internal records.However, in most cases, experience has shown that other means of identification are required and firms will usually need to contact the life companies with which they held agencies to request details of all relevant business.The MIU expects such checks to be made as a matter of course in cases where there is any doubt as to the completeness or accuracy of the firm's own records.' Direct invitation'The identification of potential phase 2 cases is essentially the 'primary' identification stage.

Unlike phase 1 where, if a client fell within one of the priority categories, the firm automatically commenced a review, phase 2 requires an initial response from the client asking that a case be reviewed.This procedure is known as 'direct invitation' - this approach has four principal elements:-- Firms should write to all clients identified as potentially falling within phase 2-- At the same time the clients will be asked to provide specific information about themselves.-- Firms are required to follow up the initial letter with a reminder in the case of non-responders.-- The FSA will oversee a high-profile publicity campaign .The 'direct invitation' approach will include a clear and simply worded letter, guidance for the investor, a fact sheet and an information request form.It is important that letters of 'direct invitation' be issued to coincide with the publicity campaign being run by the FSA.

For this reason all initial and reminder letters should be sent in the period between 4 January 1999 to 31 March 1999.Model letters, information request forms and question and answer guides are included in the model guidance - these should not be amended without prior consultation with the Law Society.

In addition, the fact sheet and envelopes which must be used when mailing the initial letter can be obtained from the MIU.Any firm involved in phase 2 will need to document clearly the processes used to ensure that all phase 2 cases have been identified and mailed.A full list of cases should be maintained and it should be possible readily to identify the current situation of each case and the steps taken to get there.

In particular, firms should keep records of which clients replied to the different phase 2 mailings and which did not.

These records will be asked for and inspected on monitoring visits.Redress calculationsOnce a phase 2 client has requested a review, the loss, compliance and causation assessments and redress calculations are those already specified for priority cases within phase 1.Firms not previously involved in the detailed review of phase 1 cases may therefore need to request a copy of annex 2 to document C, which provided the specification for the review of cases under the first phase.Firms which are or have been involved in phase 1 will have been involved in the provision of statistics to the MIU on a quarterly basis.

Within phase 2, firms will be required to submit regular statistical returns to the MIU in order that progress can be measured both generally and against target dates.The first return will be for the period ending 31 March 1999 and thereafter at quarterly intervals.In addition, firms will be required to prepare and maintain up-to-date 'project plans' for phase 2 of the review and will be required to submit these plans to the MIU on request.

Pro-forma project plans will be issued in due course to all firms which have been sent or have requested document D.For guidance on phases 1 or 2 of the review, contact a member of the MIU's pensions review team - Bob Copeland, Karen Nokes-Anderson, Richard Lawes or Valerie Smith; tel: 01527 517 141.

To request copies of the Law Society Council statements and guidance, contact Vicky George; tel: 3436.To discuss in confidence whether a firm is affected by phase 2, contact Alison Matthews, an investment business executive in the Law Society's professional ethics division; tel: 0171 242 1222 ext 3251.