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Incidental financial business licence: the widening scope

15 May 17

Does my firm need to apply to the Law Society of Scotland for an incidental financial business licence? The Professional Practice team answers

by Matthew Thomson

Your firm will need to apply to the Society for an incidental financial business (IFB) licence if:

(1) it intends to carry out IFB activities; and (2) it does not already have authorisation from the FCA to conduct regulated financial activities.

The Society’s regime for exempt regulated activities is better known as the incidental financial business or IFB regime. The Financial Services and Markets Act 2000 allows firms to undertake exempt regulated activities that would otherwise require authorisation from the FCA, provided such activities are an integral part of a solicitor’s professional services. The Society is a designated professional body for this purpose and can license firms to conduct such activities.

Firms who wish to undertake these regulated activities therefore have two options: they can apply to the Society for a licence or they can seek to be authorised by the FCA. A firm licensed by the Society for incidental financial business can undertake activities that would otherwise be regarded as regulated activities for which authorisation from the FCA would be required.

The scope of the IFB regime was widened in 2004 and 2005 to include the regulation of mortgages and general insurance business. On 1 April 2014, the FCA took over responsibility for the regulation of all consumer credit activity from the Office of Fair Trading (OFT). This most recent change expanded the scope of IFB activities even further.

The IFB licence regime now incorporates all consumer credit activities. Most law firms engage in consumer credit activity in one guise or another. For example, your firm will be caught by the consumer credit regime if your client is an individual or small partnership and your firm is extending credit by contractually deferring your fees.

One of the main conditions attached to any incidental financial business is that the work must be incidental to the provision of another professional service. This means that a firm cannot have stand-alone incidental financial business work.

You can check with the Society’s Registrar’s team (registrar@lawscot.org.uk) for a definitive view on whether any activity that your firm proposes to carry out would be covered, but types of activity include:

  • advising on investments, mortgages and general insurance;
  • making arrangements in investment, mortgages and general insurance;
  • selling investments, mortgages and general insurance;
  • engaging in any consumer credit activities at all.

If your firm is already authorised by the FCA for regulated financial activities, you do not need to apply to the Society for an IFB licence. In fact, in these circumstances, your firm cannot also be authorised for IFB by the Society. Your firm’s FCA authorisation will cover your firm for IFB activities.

Matthew Thomson is a senior solicitor in the Professional Practice team

Q&A corner: acting for separating sellers

Q. I am instructed in the sale of a jointly owned residential property, the owners being a husband and wife. Although I was not told this originally, I’ve now discovered that they are about to separate. Can I continue to act for both parties in the sale?

A. You can continue to act in the sale of the property even although they are separated. What cannot happen is you – or another solicitor within your firm – acting for either of the spouses or civil partners in relation to their matrimonial affairs at the same time. You also cannot advise either of the spouses/civil partners on any separation agreement they are trying to prepare to agree things between them. There is clear conflict of interest between them in relation to that so you must not get involved. Both clients must be referred to other agents for such advice.

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