FSA consults on its oversight of exempt professional firms

The Act makes special provision for these firms. Their investment business arises in the context of the provision of professional services, such as arranging the sale of shares on the instructions of executors or trustees; or, providing services to small, private companies. They will be able to carry on certain restricted regulated activities under the supervision and regulation of the designated professional bodies (DPBs). The legislation requires the DPBs to make rules for this.

The DPBs have not yet been designated but could include professional bodies such as the law societies, the Institutes of Chartered Accountants and the Association of Chartered Certified Accountants.

The firms will not be regulated by the FSA but the FSA will have a duty to maintain an oversight of and keep under review how they carry on regulated activities and how the DPBs regulate them. The FSA will also have a reserve power to bring the firms' activities under direct FSA regulation, if necessary to protect consumers. The FSA also makes rules for the firms to ensure that their clients are aware the firms are not authorised.

There are about 13,000 such firms out of the total 15,000 or so regulated for investment business by Recognised Professional Bodies under current legislation. The other 2,000 of the firms carry on what is termed mainstream investment business and will need to be directly regulated by the FSA.

Details

The Treasury has responsibility for designating the professional bodies. The DPBs will have responsibility for the supervision and regulation of the firms. There are also a number of safeguard arrangements involving the FSA:

• a duty to keep informed about how the DPBs supervise and regulate the firms and how the exempt professional firms carry on their regulated activities;

• an FSA power to make a direction to prevent categories of firms from benefiting from the exemption, or, to restrict the regulated activities permitted to the firms;

• power to ban a specific firm on fit and proper grounds - from taking advantage of the exemption; and

• a power to make rules for exempt firms, so that the firms disclose to their clients that they are not authorised by the FSA.

The Consultation Paper and draft rules and guidance explain the operation of these arrangements.

Under the FSA's proposed rules the exempt professional firms will be required to avoid representing to clients that they are authorised, or are regulated by the FSA. They will also have to disclose in writing to clients that they are not authorised.

Notes for editors

1. The Governments intention, as set out in the Financial Services and Markets Act is that the FSA should be the single statutory regulator of financial services business. Full implementation of the Act is expected next year. This Consultation Paper is part of the FSA's consultation on the details of the regulatory arrangements for when the Act is implemented.

2. The Government announced on 13 October 1999 that accountants, solicitors and other professionals would not need to be regulated by the FSA for financial services when they are not carrying on mainstream financial services business. There would be full FSA regulation of those professional firms doing mainstream financial services business as for other financial services firms. There would be indirect oversight by the FSA of other financial services activities carried on in the course of the legal, accountancy or actuarial profession, such as the execution of clients' instructions in purchase or sale of a company, or in dealing with settlements arising from the execution of wills or divorce proceedings. These proposals were introduced as Part XX of the Financial Services and Markets Act 2000.

3. The RPBs and the number of firms they certified for investment business at 31 March 2000, approximately 15,000 in all, are: The Institute of Chartered Accountants in England and Wales (4,779 firms); The Institute of Chartered Accountants of Scotland (420 firms); The Institute of Chartered Accounts in Ireland (770 firms); The Association of Chartered Certified Accountants (792 firms); The Law Society (England and Wales) (6,590 firms); The Law Society of Scotland (540 firms); The Law Society of Northern Ireland (530 firms); and, The Institute of Actuaries (43 firms).

4. The consultation paper is available from the FSA website: www.fsa.gov.uk/pubs/cp/69

5. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.

6. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.

Appended information

This Consultation paper is available from the publications section of our web site. The direct URL is http://www.fsa.gov.uk/Pages/Library/Policy/CP/2000/69.shtml.