Authors:Vicky Ling and Matthew Moore
Created:2015-10-01
Last updated:2023-09-18
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Practice management Time to get to know your latest regulator
The Financial Conduct Authority is the new kid on the regulatory block, and legal aid firms would do well to understand how they may be subject now, or in the future, to its powers.
Legal aid practitioners are subject to multiple regulation regimes. Solicitors (and the organisations employing them, if in private practice) are regulated by the Solicitors Regulation Authority. Law centres, Citizens Advice and independent advice centres are regulated by the Charity Commission. Non-solicitor immigration advisers are regulated by the Office of the Immigration Standards Commissioner. The Legal Aid Agency also operates as a regulator, laying down rules for the qualifications some advisers and supervisors must achieve, imposing service standards and investigating complaints about bad practice.
A new kid on the block is the Financial Conduct Authority, which has wide-ranging powers under the Financial Services and Markets Act 2000 and secondary legislation. However, legal aid practitioners, and the wider advice sector, are not always clear about its jurisdiction and powers.
Regulated activities
Not-for-profit agencies providing money advice/debt counselling became subject to registration from 1 April 2014. This was because they are involved in ‘regulated activities’ (FSMA 2000 s222 and Sch 2), such as advising people on discharging specific debts and helping them with debt problems by negotiating on their behalf. They often also provide noncommercial credit information services, eg obtaining information about someone’s credit record.
Members of AdviceUK, Law Centres Network and Citizens Advice were previously covered by Office of Fair Trading group debt licences and were automatically transferred to FCA regulation. Since 2015, they have been responsible for keeping their own registrations up to date, as the regime has no group licence equivalent.
Failure to register as required is a criminal offence, but happily there is no registration fee for not-for-profit advice work. You can find out if your organisation is authorised by the FCA by running a financial services firm search on its Financial Services Register website.
Every client who could raise a complaint about regulated debt advice must be informed of the complaints procedure in writing during or following the first point of contact. This must include contact details for the FCA and the Financial Ombudsman Service.
The reporting period runs from April to March, and the deadline for reports to be submitted is May. Agencies are individually responsible for complying with the FCA’s reporting requirements, which are that they must: inform the FCA of any changes to their organisation’s details; keep a record of all complaints where the FCA has jurisdiction; and report all such complaints annually.
Exempt persons
Solicitors in private practice are also caught up in the provisions as a result of the ‘general prohibition’ in FSMA 2000 s19, which provides that ‘no person may carry on a regulated activity in the United Kingdom’ unless authorised or exempt. Most law firms, however, unless they provide mainstream investment advice, fall under the wider category of ‘exempt persons’ dealt with as ‘members of a profession’ under FSMA 2000 s327.
Most solicitors’ firms in private practice carry out some regulated activities as a result of having to provide advice and make arrangements on the disposal of assets, such as redeeming investments in probate work. There is also the related issue of insurance mediation, which arises wherever a firm advises on, arranges or assists in the performance of an insurance contract. Since this could include introducing a client to a broker, or even being involved in litigation featuring an insurance contract, it again follows that most firms are covered by these provisions.
Firms involved in all such activities will be subject to the FCA regime indirectly through being registered with the SRA, then being aware of, and complying with, the SRA Financial Services (Scope) Rules 2001 and the SRA Financial Services (Conduct of Business) Rules 2001. There also needs to be a financial compliance officer. You can check your firm’s status by running an exempt professional firm search on the FCA’s Financial Services Register website.
For the most part, compliance is simply an issue of ensuring that the necessary registration is maintained and that the issues are addressed in the firm’s terms of business or engagement letters, and providing contemporaneous ‘demands and needs statements’ in the case of insurance mediation.
Lack of resolution
For most firms there remains something of a stand-off between the SRA and the FCA over regulation by the latter, which is far from resolved. For the time being, the prospect of having to register with the FCA in order to charge private paying clients interest on outstanding debts, or to collect fees by instalments, remains a distinct possibility. Watch this space. ■