Law Society Regulations – Do you comply? Is your retainer safe?
The January 2005 Insurance Mediation Directive (IMD) impacts upon Solicitors regulatory duties in the context of personal injury ATE legal expenses insurance backed schemes.
Since the introduction of the IMD, general insurance contracts, including ATE, fall within the regulatory framework of the Financial Services and Markets Act 2000 (the “Act”) by virtue of the Regulated Activities Order 2001, as amended.
Insurance Mediation, a regulated activity, is defined as:
“The activities of introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance, or of concluding such contracts, or of assisting in the administration and performance of such contracts, in particular in the event of a claim.”
Therefore, in the course of practice generally, and when dealing with personal injury claims, a Solicitor is fairly likely to be carrying out activities which constitute a regulated activity as defined.
Part XX of the Act makes provision for solicitors regulatory compliance duties to be controlled by it’s Designated Professional Body, the Law Society and this is achieved by virtue of the Solicitors Financial Services SCOPE and Code of Business Regulations 2001.
These regulations set out the extent of regulated activities which may be undertaken by solicitors and are derived from section 327 and 332(4) of the Act.
A Solicitors practice must be registered with the Law Society as an exempt professional firm (EPF) to be exempt from the Act and to come under the SCOPE and CoB regulations, and thereby be able to conduct insurance mediation activities. It must also appoint a compliance officer who will be responsible for any exempt regulated activities conducted by the firm.
It should be noted that conducting any insurance mediation activity in any unauthorised way is generally prohibited (Section 19 of the Act), is a criminal offence (Section 23 of the Act – an imprisonable offence) and renders any agreement thereunder unenforceable (Section 26 of the Act). Furthermore, any breach of the SCOPE and/or CoB regulations, as well as being a criminal offence and subject to FSA sanctions, is also a professional disciplinary matter by virtue of Rule 6 of the SCOPE Rules.
Provided the regulated activity being carried on by the solicitor is incidental to their mainstream business and is supervised and regulated by the Law Society and complies with all the various provisions of the SCOPE and CoB Regulations the activity may be carried on by the solicitor without breaching the general prohibition.
Solicitors should also be aware of Rule 12 of the Solicitors Practice Rules which prohibits them:-
– being an “appointed representative” in connection with investment business (which we now know includes general insurance – including ATE)
– from having any arrangement with others under which they could be constrained to recommend transactions in some contracts of insurance but not others, with some persons but not others or through the agency of some persons but not others
– from introducing or referring clients to some persons with whom the solicitors deal but not others.