The FSA consults on the future regulation of professional firms

About 2,000 professional firms provide mainstream investment business services such as giving advice on investment products, discretionary investment management or corporate finance services of a significant type, for example, in connection with listings. They are currently regulated by their professional bodies for such business but once the Financial Services and Markets Act comes into force they will be regulated by the FSA.

Michael Folger, director of investment business at the FSA said:

"This consultation signposts key features of the future regulatory regime for those professional firms which will be authorised by the FSA and gives them an opportunity to play a part in shaping the arrangements. The FSA''s aim is to ensure an appropriate level of consumer protection by requiring professional firms doing business similar to others in the investment community to meet comparable standards. We look forward to receiving input from the firms concerned, their customers and others. "

The main matters covered in the Consultation Paper are:

Authorisation and Approved Person arrangements;

Prudential and solvency requirements;

Complaints and the Financial Services Ombudsman Scheme;

Compensation;

Supervision and enforcement;

Training and competence;

Conduct of Business standards;

Fees implications.

Notes for editors

The Governments intention, as set out in the Financial Services and Markets (FSM) Bill currently at the Committee stage in Parliament is that the FSA should be the single statutory regulator of financial services business.

Professional firms are currently authorised and regulated for investment business by the 8 Recognised Professional Bodies (RPBs) under the Financial Services Act. Once the FSM Act comes into effect in the second half of year 2000, the RPBs will lose their powers and functions as regulators of firms carrying on investment business. Professional firms carrying on mainstream investment business will be directly regulated by the FSA. There are about 2,000 such firms.

As part of its commitment to cost-efficient regulation the FSA will be considering whether to employ external organisations to carry out certain supervisory functions on its behalf. This would not affect the FSAs statutory responsibility for the functions. An advertisement will be published in the Official Journal of the European Communities.

The Government announced on 13 October this year that professional firms not carrying on mainstream investment business would not be regulated by the FSA. These are firms whose investment business arises only in the context of the provision of professional services, such as arranging the sale of shares on the instructions of executors or trustees without providing investment advice.

The FSA will, however, be required to keep generally under review the way in which such non-mainstream activities are carried out with the prospect of bringing these activities under direct FSA regulation, if necessary to protect the consumer.

The RPBs and the number of firms they authorised at 31 March 1999, approximately 15,000 in all, are: The Institute of Chartered Accountants in England and Wales (4,733 firms); The Institute of Chartered Accountants of Scotland (415 firms); The Institute of Chartered Accounts in Ireland (753 firms); The Association of Chartered Certified Accountants (822 firms); The Law Society (England and Wales) (6,876 firms); The Law Society of Scotland (554 firms); The Law Society of Northern Ireland (489 firms); and, The Institute of Actuaries (41 firms).

The consultation period for CP30 ends on 14 January 2000.

Consultation Paper 30 is available priced 10.00 by sending a cheque made payable to the FSA and sent to the Sales and Distribution Department. Alternatively the Consultation Paper can be found on this FSA Website at http://www.fsa.gov.uk/pdf/cp30.pdf

Printed copies of the Consultation Paper will be despatched to firms next week.