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).
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
3. Our view is that the proposals in FSA Consultation
Paper 20The Qualifying Conditions for Authorisationwill
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
costsseparate 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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