Winds of change as FSMA breezes in

Alison Crawley looks at the timetable for changes to the scheme for regulating financial services The Treasury has announced that 'N2' - the date when most of the Financial Services and Markets Act 2000 (FSMA) comes into force - is 1 December 2001.

On that date the Financial Services Authority (FSA) becomes the only body with power to authorise firms to provide 'regulated activities'; the Law Society's powers as a recognised professional body cease.

However, the Law Society has become a designated professional body (DPB) which will allow solicitors' firms to provide certain limited 'regulated activities' without being authorised by the FSA.

At the end of August, firms will receive an opt-in pack from the FSA, enclosing guidance on the new regime and an opt-in form.

The form only has to be returned to the FSA if a firm wants to be 'grandfathered' into authorisation by the FSA.

The grandfathering process means that a firm providing a particular type of investment business service now, will be able to provide that service after the firm has moved into authorisation by the FSA.

Firms that do not want to be authorised by the FSA, because they will only provide those limited services which are allowed under the DPB scheme, should not return the opt-in form and need take no further action.

Opt-in forms must be returned to the FSA one month before 1 December.

It is important that partners set up a process to establish who has responsibility for considering the issues.

An information pack containing rules and guidance about the DPB regime will be sent to firms separately by the Law Society, to arrive within a few days of the FSA opt-in pack.

It will be addressed to the senior partner, but should be seen by the compliance officer.

In future, stepping outside of what is allowed under the DPB regime could be a criminal offence.

So, it is important that firms consider the contents of both the opt-in pack and the Law Society information pack before reaching a decision.

The FSA pack contains guidance on the meaning of the relevant legislation and parts of the DPB guidance rely on an understanding of that legislation.

It is important that the FSA opt-in pack and information pack to be sent by the Law Society reach the right person in the firm.Most firms that now limit their investment business activities to non-discrete investment business should be able to operate within the DPB regime, and that was the intention of the creation of the scheme.

However, the FSMA has introduced a regime for the regulation of financial promotions which operates independently of the DPB regime.

Some firms, particularly those involved in significant corporate work and corporate finance work will need to consider the financial promotions order carefully.

The definition of a financial promotion, which can only be made (or sometimes approved) by an authorised person, is wide.

Although the order contains exemptions, some of which will be useful for solicitors' work, they can be difficult to apply.

Another important change is that firms will not be able to approve financial promotions unless they are authorised by the FSA.Firms contemplating FSA authorisation may have questions about permissions they need and want, the impact of different permissions on the different fees payable and on the grandfathering process generally.

The FSA will be setting up a helpline to deal with queries.

The FSA is the proper authority for queries on the scheme and how they see the legislation as being interpreted.

The Law Society will be able to deal with queries on the DPB regime but where the query relates to the meaning of the legislation, as opposed to the Law Society's own rules, the Society may be unwise to comment.

Alison Crawley is head of professional ethics at the Law Society