Pressure of FSA regulation forced 350 smaller law firms to opt in by mistake

High cost: regime means firms have to employ a full-time compliance manager

Almost 350 law firms opted in to Financial Services Authority (FSA) regulation by mistake in the first three months of the regime, it emerged last week.There have also been complaints about the cost of regulation and lack of clarity since the FSA assumed regulation of investment business.Alison Crawley, the Law Society's head of professional ethics, said: 'A number of smaller firms got confused with the passing of N2 [the 1 December 2001 date when the FSA took full effect] and decided to comply with FSA regulation with the view of "better safe than sorry".'However, we wrote to all those firms explaining the situation more clearly and now most of them have opted out again.' Ms Crawley said these firms simply did not have time to read all the complex FSA regulations and probably opted in out of fear.Heather Martin, chief executive of the Association of Solicitor Investment Managers, said the change 'hasn't been as bad as our members expected with regards to conforming to rules'.However, she said the regulations have been more expensive to comply with than imagined because of increased people costs.

She explained: 'Firms are finding it necessary to employ a full-time compliance manager, whereas previously many thought a partner could handle this role in a part-time capacity.'Ms Crawley said one issue that needed clarifying was the regulation that prevents firms from introducing clients to a particular financial adviser.'Solicitors feel they have a moral obligation to direct their clients to good advice,' she said.

'They need to know how far they can go before their actions require FSA authorisation.'Andrew Towler