Financial Services and Markets Appendices to the Minutes of Evidence


Memorandum by the Association of Solicitor Investment Managers (ASIM)

  1. This association has previously made submissions dated 14 August 1998 (provided to David Roe, HM Treasury) and 27 November 1998 (copy enclosed).[4]

  2. The recent growth in investment services provided by solicitors' firms (where employees have the necessary qualifications) has been one of the most interesting competitive innovations of the last decade and has provided access to independent, local, high-quality advice with unrivalled investor protection to many people. The FSA is under a duty to encourage such innovative, competitive developments but we are concerned that proposals set out in its consultation papers (or pre-consultation papers) to date would make such an innovation highly unlikely to re-occur in future and would damage the development of this movement amongst solicitors' firms.

  3. Our view is that the proposals in FSA Consultation Paper 20—The Qualifying Conditions for Authorisation—will be a severe deterrent to any small organisation which may wish to enter the market for investment services. This is because of the requirements for professional validation of business plans, pre-application commitment to premises, systems and staff and the six-month approval period which will in combination deter even well organised entrepreneurs and constitute a significant barrier to entry.

  4. We are also concerned at the possible imposition of overburdensome financial resources requirements on agency investment management firms, such as those in solicitors' firms, which would increase costs for no benefit to consumers.

  5. ASIM members' customers are already adequately protected by insurance and business continuity arrangements which have long been in place in solicitors' firms under statutory rules. Financial failure of a firm is an unlikely cause of investor loss in solicitor investment managers because:

    5.1  the agency structure involves no capital at trading risk;

    5.2  solicitors' statutory intervention arrangements come into play in the event of business failure;

    5.3  indemnity insurance provides cover against fraud and negligence.

  6. Imposing capital adequacy requirements on integrated legal and investment practices will force the expensive demerger of the two business streams in order that the "pure" legal stream is not saddled with the inefficient capital adequacy costs. Demerger will bring about substantial and pointless additional costs—separate premises, separate computer networks, separate administration and separate staff contracts. ASIM believes 30 per cent to 40 per cent of existing solicitor investment managers would close down their businesses, reducing choice for the consumer in these circumstances.

31 March 1999

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