SRA Handbook

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Version 6 of the Handbook was published on 01/01/2013. For more information, please click 'History' Above

Part 1: RULES

Rule 1: Purpose

1.1

The Law Society is a designated professional body under Part XX of FSMA, and firms may therefore carry on certain regulated activities without being regulated by the FSA.

1.2

The SRA Financial Services (Scope) Rules 2001 set out the scope of the regulated activities which may be undertaken by firms which are not regulated by the FSA. These rules regulate the way in which firms carry on such exempt regulated activities.

Rule 2: Application

2.1

Where a firm is a licensed body, these rules apply only in respect of:

(a)

any reserved legal activity;

(b)

any other legal activity;

(c)

any other activity in respect of which the licensed body is regulated pursuant to Part 5 of the LSA.

2.2

Apart from rule 3 (status disclosure), these rules apply to:

(a)

firms which are not regulated by the FSA; and

(b)

firms which are regulated by the FSA but these rules only apply to such firms in respect of their non-mainstream regulated activities.

Rule 3: Status disclosure

3.1

This rule applies only to firms which are not regulated by the FSA.

3.2

A firm shall give the client the following information in writing in a manner that is clear, fair and not misleading before the firm provides a service which includes the carrying on of a regulated activity:

(a)

a statement that the firm is not authorised by the FSA;

(b)

the name and address of the firm;

(c)

the nature of the regulated activities carried on by the firm, and the fact that they are limited in scope;

(d)

a statement that the firm is authorised and regulated by the Solicitors Regulation Authority; and

(e)

a statement explaining that complaints and redress mechanisms are provided through the Solicitors Regulation Authority and the Legal Ombudsman;

3.3

Before a firm provides a service which includes the carrying on of an insurance mediation activity with or for a client, it must make the following statement in writing to the client in a way that is clear, fair and not misleading:

"[This firm is]/[We are] not authorised by the Financial Services Authority. However, we are included on the register maintained by the Financial Services Authority so that we can carry on insurance mediation activity, which is broadly the advising on, selling and administration of insurance contracts. This part of our business, including arrangements for complaints or redress if something goes wrong, is regulated by Solicitors Regulation Authority. The register can be accessed via the Financial Services Authority website at www.fsa.gov.uk/register/home.do."

Notes

(i)

Where the status disclosure relates to insurance mediation activities then the statement in rule 3(3) must be used. The status disclosure need not be tailored to the needs of the individual client. The disclosures may be provided alongside or integrated with other material provided to the client. These disclosures may be made in the firm's client care letter or in a separate letter.

(ii)

Outcome (8.5) in Chapter 8 of the SRA Code of Conduct is that your letterhead, website and e-mails must show the words "authorised and regulated by the Solicitors Regulation Authority" which will assist in meeting the requirements of rule 3(2).

(iii)

The provisions of rule 3(2)(d) and rule 3(3) reflect the requirements of the outcomes in Chapter 1 of the SRA Code of Conduct in respect of complaints handling.

Rule 4: Execution of transactions

4.1

A firm shall ensure that where it has agreed or decided in its discretion to effect a transaction, it shall do so as soon as possible, unless it reasonably believes that it is in the client's best interests not to do so.

Note

(i)

Principle 4 sets out your duty to act in the best interests of the client. Accordingly, in cases where there is any doubt on the point, firms should ensure that transactions are effected on the best terms reasonably available.

Rule 5: Records of transactions

5.1

Where a firm receives instructions from a client to effect a transaction, or makes a decision to effect a transaction in its discretion, it shall keep a record of:

(a)

the name of the client;

(b)

the terms of the instructions or decision; and

(c)

in the case of instructions, the date when they were received.

5.2

Where a firm gives instructions to another person to effect a transaction, it shall keep a record of:

(a)

the name of the client;

(b)

the terms of the instructions;

(c)

the date when the instructions were given; and

(d)

the name of the other person instructed.

Note

(i)

It is not necessary for the firm to make a separate record. Normal file notes or letters on the file will meet the requirements of this rule provided that they include the appropriate information. If instructions are given or received over the telephone, an appropriate attendance note would satisfy this rule.

Rule 6: Record of commissions

6.1

Where a firm receives commission which is attributable to regulated activities carried on by the firm, it shall keep a record of:

(a)

the amount of the commission; and

(b)

how the firm has accounted to the client.

Notes

(i)

Any financial benefit has to be dealt with in accordance with Outcome (1.15) in Chapter 1 of the SRA Code of Conduct. However, firms should bear in mind that in the case of commissions attributable to regulated activities, firms must also comply with the requirements of the SRA Financial Services (Scope) Rules 2001, rule 4 (c).

(ii)

The record could be a letter or bill of costs provided the information is clear.

Rule 7: Safekeeping of clients' investments

7.1

Where a firm undertakes the regulated activity of safeguarding and administering investments, the firm must operate appropriate systems, including the keeping of appropriate records, which provide for the safekeeping of assets entrusted to the firm by clients and others.

7.2

Where such assets are passed to a third party:

(a)

an acknowledgement of receipt of the property should be obtained; and

(b)

if they have been passed to a third party on the client's instructions, such instructions should be obtained in writing.

Rule 8: Packaged products - execution-only business

8.1

If a firm arranges for a client on an execution-only basis any transaction involving a retail investmentpackaged product, the firm shall send the client written confirmation to the effect that:

(a)

the client had not sought and was not given any advice from the firm in connection with the transaction; or

(b)

the client was given advice from the firm in connection with that transaction but nevertheless persisted in wishing the transaction to be effected; and in either case the transaction is effected on the client's explicit instructions.

Rule 9: Insurance mediation activities

9.1

Where a firm undertakes insurance mediation activities for a client, it must comply with appendix 1 to these rules.

Rule 10: Retention of records

10.1

Each record made under these rules shall be kept for at least six years.

Note

(i)

The six years shall run from the date on which the relevant record has been made.

Rule 11: Waivers

WAIVERS

11.1

In any particular case or cases the SRA shall have power to waive in writing any of the provisions of these rules, but shall not do so unless it appears that:

(a)

compliance with them would be unduly burdensome having regard to the benefit which compliance would confer on investors; and

(b)

the exercise of the power would not result in any undue risk to investors.

11.2

The SRA shall have power to revoke any waiver.

Rule 12: Commencement

COMMENCEMENT

12.1

These rules come into force on 1 December 2001.

12.2

From 31 March 2012 or the date on which an order made pursuant to section 69 of the LSA relating to the status of sole practitioners comes into force, whichever is the later, these rules shall have effect subject to the following amendment:

(a)

in the preamble the words "and recognised sole practitioners" shall be omitted.

12.3

These rules shall not apply to licensed bodies until such time as the Law Society is designated as a licensing authority under Part 1 of Schedule 10 to the Legal Services Act 2007 and all definitions shall be construed accordingly.

12.4

In these rules references in the preamble to the Rules being made under section 83 of the Legal Services Act 2007 shall have no effect until the Law Society is designated as a licensing authority under Part 1 of Schedule 10 to the Legal Services Act 2007."

Rule 13: Interpretation

INTERPRETATION

13.1

The SRA Handbook Glossary 2012 shall apply and, unless the context otherwise requires:

(a)

all italicised terms shall be defined; and

(b)

all terms shall be interpreted,

in accordance with the Glossary.

Notes

(i)

Whether a transaction is execution-only will depend on the existing relationship between the client and the firm and the circumstances surrounding that transaction. Generally, a transaction will be execution-only if the client instructs the firm to effect it without having received advice from the firm. Even though this is the case, however, the transaction may still not qualify as execution-only because, in view of the relationship, the client may reasonably expect the firm to indicate if the transaction is inappropriate. In any event, a firm may be negligent (and possibly in breach of Principle 4) if it fails to advise on the appropriateness or otherwise.

(ii)

A transaction will also be execution-only if the firm has advised the client that the transaction is unsuitable, but the client persists in wishing the transaction to be carried out. In those circumstances it is good practice (and in some cases a requirement) for the firm to confirm in writing that its advice has not been accepted, and that the transaction is being effected on an execution-only basis.

(iii)

Where the transaction involves a retail investmentpackaged product, there is a specific requirement to confirm in writing the execution-only nature of a transaction (see Rule 8 above).

13.2

These rules are to be interpreted in the light of the notes.