SRA Handbook

Basic conditions

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Version 14 of the Handbook was published on 30/04/2015. For more information, please click 'History' Above

Rule 4: Basic conditions

4.1

A firm which carries on any regulated activities must ensure that:

(a)

the activities arise out of, or are complementary to, the provision of a particular professional service to a particular client;

(b)

the manner of the provision by the firm of any service in the course of carrying on the activities is incidental to the provision by the firm of professional services;

(c)

the firm accounts to the client for any pecuniary reward or other advantage which the firm receives from a third party;

(d)

the activities are not of a description, nor do they relate to an investment of a description, specified in any order made by the Treasury under section 327(6) of FSMA;

(e)

the firm does not carry on, or hold itself out as carrying on, a regulated activity other than one which is allowed by these rules or one in relation to which the firm is an exempt person;

(f)

there is not in force any order or direction of the FCA under sections 328 or 329 of FSMA which prevents the firm from carrying on the activities; and

(g)

the activities are not otherwise prohibited by these rules.

Notes

(i)

In order to comply with rule 4(a) you must ensure that the regulated activity in question arises out of, or is complementary to, other professional services to a particular client. The effect of this is that it is not possible to undertake a regulated activity in isolation for a client.

(ii)

In order to comply with rule 4(b) the exempt regulated activities cannot be a major part of the practice of the firm. The FCA considers that the following factors are relevant to this: the scale of regulated activity in proportion to other professional services provided; whether and to what extent activities that are regulated activities are held out as separate services; and the impression given of how the firm provides regulated activities, for example through its advertising or other promotion of its services.

(iii)

In order to comply with rule 4(c) you must account for any commission or other financial benefit to the client. Accounting to the client does not mean simply telling the client that the firm will receive commission. It means that the commission etc must be held to the order of the client and the client gives you informed consent to keep it. To comply with the rule you should, in advance of the arrangement and/or provision of the third party financial service:

(a)

inform the client of their rights to any commission etc;

(b)

inform the client that the arrangement and/or provision of the service is not dependant on their agreement to waive their right to any commission etc;

(c)

seek and record agreement from the client as to whether any commission etc should be passed to the client, retained by the firm to offset client fees, or retained by the firm with the client waiving their right to it.