To the Managing Partner 
25th November 1998 

Dear Colleague, 

As you may be aware, recent legislation has sought to clarify the rights and obligations of those who provide services in the area of investments. 

Investment Intermediaries Act 
The Investment Intermediaries Act, 1995 (IIA) introduced certain obligations for those providing investment services to clients, including solicitors, although there was a degree of uncertainty as to the exact extent of those obligations. 

Investor Compensation Act 
The Investor Compensation Act, 1998 (ICA), which came into effect on 1^st August 1998, has clarified the position and has altered the requirements applying to solicitors who wish to provide investment business services, investment advice or insurance intermediary services to clients. 

The purpose of this letter is to summarise the current statutory position and the options open to you as a practising solicitor in providing investment services to clients and earning commission therefrom, as follows: 

• If you wish to provide investment business services, investment advice or insurance intermediary services to clients not incidental to the provision of legal services to those clients, you must first become authorised by the Central Bank as an "authorised investment business firm" or, in the case of insurance intermediary services, meet the relevant requirements of the Insurance Act, 1989 and the ICA. This may involve compliance with some detailed and (some may find) onerous obligations and, accordingly, may not be seen as practical or appropriate by most practising solicitors.

Letter of Appointment 

• Alternatively, you may provide investment business services, investment advice or insurance intermediary services to clients to whom you are providing legal services, if such services or advice are provided incidental to the provision of legal services to those clients. In relation to the incidental provision of investment business services, you must obtain a letter of appointment as an 

Irish Pensions Trust Ltd 
As it may prove difficult in the future for solicitors to obtain letters of appointment directly from financial institutions, the Society has entered into an arrangement with Irish Pensions Trust Ltd, trading as Solicitors Financial Services, whereby Irish Pensions Trust will issue letters of appointment to practising solicitors. You can direct your investment business services, obtain investment advice and invest your clients’ funds via this arrangement. Advice and information on the new service can be obtained from Solicitors Financial Services at 1800-300-900. 

For your information, I attach two Memoranda. The first Memorandum outlines in greater detail the recent statutory changes as they apply to practising solicitors and the consequential Regulations recently made by the Society (S.I. No. 439 of 1998), which come into operation on 1^st December next. The second Memorandum outlines the arrangement put in place by the Society with Irish Pensions Trust Ltd, trading as Solicitors Financial Services, to facilitate the provision of investment business services by solicitors to their clients. Obviously, if you are considering registering as an "authorised investment business firm" you should carefully consider the provisions of the IIA and the ICA, as well as the requirements of the Central Bank in that regard. 

Yours sincerely, 

Patrick O’Connor 
President 

Memorandum 
on the 
Application of the Investment Intermediaries Act, 1995 ("IIA") and the  
Investor Compensation Act, 1998 ("ICA") to Solicitors 

1. Under the IIA, a solicitor holding a practising certificate was excluded from the definition of an "investment business firm" (and thereby from most of the obligations under the IIA) where the solicitor provided investment business services or investment advice in an incidental manner (i.e. incidental to the provision of legal services). Although not clear from doubt, it seemed that, under the IIA, a solicitor who was an intermediary in the investment of clients’ funds (with the client’s consent) with a financial institution in return for a "fee, commission or other reward" was an "investment product intermediary" and therefore was required to – 
• hold a letter of appointment from each financial institution with whom clients’ funds were placed for investment; and 
• comply with certain obligations concerning the issuing of receipts for clients’ funds received for investment.
Other obligations under the IIA dealing with professional indemnity insurance were not brought into effect and the bonding requirements provided for in the IIA did not appear to apply to a solicitor holding a practising certificate.  

However, due to uncertainty as to what obligations under the IIA did in fact apply to practising solicitors, solicitors earning commission from placing clients’ funds with financial institutions for investment often did not in fact hold letters of appointment from those institutions. 

2. The ICA has now clarified the regulatory position. A solicitor holding a practising certificate will not be regarded as an investment business firm within the meaning of the IIA where – 
• the solicitor does not hold himself out as providing investment business services (which is defined as including the activities of an insurance intermediary) and/or investment advice;
• the provision of investment business services or investment advice by the solicitor is only done incidentally to the provision of legal services; and 
• when acting as an investment product intermediary (e.g. placing deposits with a financial institution), the solicitor holds a letter of appointment from the financial institution concerned, whether that institution be an investment business firm, a stockbroker, a credit institution or a collective scheme manager (in each instance) situate in the State, which is authorised as such by the Central Bank.
3. (a) The ICA made certain amendments to the Solicitors (Amendment) Act 1994 and has provided that the definition of "legal services" now includes the provision of investment business services and investment advice unless the solicitor providing such services or advice is an authorised investment business firm. Therefore, unless such a solicitor is authorised by the Central Bank as an "authorised investment business firm", any claims by clients for loss in consequence of the dishonesty or negligence of that solicitor (or any "clerk or servant" of that solicitor) in providing such services or advice will fall to be dealt with either by the Society’s Compensation Fund (where dishonesty) or under the mandatory professional indemnity cover of the solicitor (where negligence) and not by the compensation fund established under the ICA.
4. (b) The maximum compensation per claim payable by the compensation fund established under the ICA is limited to 20,000 ECU (approx. IR£16,000) in contrast to the IR£350,000 present upper limit per claim in respect of both the Society’s Compensation Fund and the minimum level of cover under the Society’s Professional Indemnity Insurance Regulations 1995. (The minimum level of Professional Indemnity Insurance cover will increase to £1,000,000 with effect from 1^st January, 1999.) Therefore, to avoid potentially serious exposure of, in particular, the Compensation Fund to the detriment of the profession as a whole whose annual contributions maintain it, the ICA has provided (by means of the insertion of an new section, Section 30A, in the Solicitors (Amendment) Act, 1994) that solicitors holding practising certificates, who choose to become authorised investment business firms or who choose to hold themselves out as insurance intermediaries (and so notify the Central Bank of that fact), should provide additional forms of indemnity so that the level of protection provided for their investment business services clients in the event of loss to such clients caused by the dishonest or negligent default of such solicitors acting in that capacity is the equivalent of what it would be if such clients were clients in receipt of "legal services" as now defined. 
5. (c) Regulations have now been made to that end by the Society (S I No. 439 of 1998, effective from 1^st December 1998), and a copy of same is attached. In consequence, the practising certificate application form for 1999 and for subsequent years will be amended to incorporate the questions and undertakings provided for in these Regulations.

Memorandum 
on 
Solicitors Financial Services 
(operated by Irish Pensions Trust Ltd ("IPT"), an authorised investment business firm) 

1. A solicitor holding a practising certificate who wishes to earn commission as an intermediary in referring clients’ funds to financial institutions for investment can do so in compliance with the Investment Intermediaries Act, 1995 ("IIA") and the Investor Compensation Act, 1998 ("ICA"), provided that the solicitor – 
1. does not hold himself/herself out as providing investment business services and/or investment advice,
2. only provides such services or advice in a manner incidental to the provision of legal services, and,
3. channels the investment of clients’ funds (with the client’s consent) through Solicitors Financial Services or through another Central Bank-authorised financial institution, from whom the solicitor holds a letter of appointment that makes the solicitor an "investment product intermediary" for the institution concerned.
2. For the period ending 1^st October 1999, the Law Society of Ireland has licensed to IPT (an authorised investment business firm) the use of the company and business name "Solicitors Financial Services", formerly used by the Society itself.
3. Solicitors Financial Services will, on acceptance of an application, issue a solicitor or a firm of solicitors with a letter of appointment as an investment product intermediary for Solicitors Financial Services.
4. Solicitors Financial Services can provide the legal services’ client of a practising solicitor (to whom Solicitors Financial Services has issued a letter of appointment) with investment advice and can invest the client’s funds in accordance with that advice or in accordance with the client’s wishes in that regard as conveyed directly by the client or through the solicitor.
5. The arrangement with Solicitors Financial Services means that, where a solicitor previously placed (with the client’s consent) clients’ funds for investment directly with a financial institution and earned commission for doing so, the solicitor can now, in effect, continue to do so via Solicitors Financial Services, albeit on a commission-sharing basis. 

The commission-sharing arrangement agreed by IPT operating as Solicitors Financial Services will mean that, after payment of a 5% licence fee to the Law Society of Ireland for use of the name "Solicitors Financial Services", IPT will share commission received 50/50 with the solicitor concerned. 

6. Whilst the level of the commission receivable by a solicitor from Solicitors Financial Services would be less than might previously have been received by the solicitor, the legal position now is that, unless the solicitor can obtain a letter of appointment directly from one or more other Central Bank-authorised financial institutions, the solicitor cannot lawfully continue acting as an investment product intermediary in return for a "commission, fee or other reward" without first obtaining a Central Bank-authorisation as an "authorised investment business firm". Because of the more strict regulatory responsibilities imposed on financial institutions who issue letters of appointment, it seems likely that the obtaining by practising solicitors of letters of appointment (or practising solicitors being able to continue to hold such letters of appointment, if previously issued) may prove more difficult that heretofore; recent indications being that there has been and will continue to be a reduction in the number of intermediaries appointed by such institutions.
7. Further information on Solicitors Financial Services will be sent by IPT to all members of the Society in due course. In the meantime, advice and information on the new service being offered by IPT can be obtained from Solicitors Financial Services at 1800 300 900.

THE SOLICITORS ACTS, 1954 TO 1994 
(INVESTMENT BUSINESS AND INVESTOR COMPENSATION) REGULATIONS, 1998 

The Law Society of Ireland, in exercise of the powers conferred on them by section 71 of the Solicitors Act, 1954 (as amended by section 69 of the Solicitors (Amendment) Act, 1994) and section 30A of the Solicitors (Amendment) Act, 1994 (as inserted by section 46 of the Investor Compensation Act, 1998) HEREBY MAKE the following Regulations:- 

1. These Regulations may be cited as The Solicitors Acts, 1954 to 1994 (Investment Business and Investor Compensation) Regulations, 1998.
2. These Regulations shall come into operation on 1^st December, 1998.
1. In these Regulations –

"the Act of 1954" means the Solicitors Act, 1954 (No. 36 of 1954); 

"the Act of 1960" means the Solicitors (Amendment) Act, 1960 (No. 37 of 1960); 

"the Act of 1994" means the Solicitors (Amendment) Act, 1994 (No. 27 of 1994); 

"the Act of 1995" means the Investment Intermediaries Act, 1995 (No. 11 of 1995); 

"the Act of 1998" means the Investor Compensation Act, 1998 (No. 37 of 1998); 

"the Bank" means the Central Bank of Ireland; 

"the Company" means The Investor Compensation Company Limited formed and registered pursuant to section 10 of the Act of 1998; 

"the Compensation Fund" means the fund maintained by the Society pursuant to sections 21 and 22 of the Act of 1960 (as substituted by sections 29 and 30 of the Act of 1994); 

"authorised investment business firm" has the meaning assigned to it in section 2(4) of the Act of 1998; 

"certified person" has the meaning assigned to it in section 2 of the Act of 1998; 

"he" and other cognate words denoting the masculine include "she" and other cognate words denoting the feminine; 

"insurance intermediary" has the meaning assigned to it in section 2 of the Act of 1998; 

"investment advice" has the meaning assigned to it in section 2 of the Act of 1995; 

"investment business firm" has the meaning assigned to it in section 2 of the Act of 1995; 

"investment business services" has the meaning assigned to it in section 2 of the Act of 1998; 

"investment firm" has the meaning assigned to it in section 2 of the Act of 1998; 

"investment product intermediary" has the meaning assigned to it in section 25 of the Act of 1995; 

"legal services" has the meaning assigned to it in section 2 of the Act of 1994, as substituted by section 45 (b) of the Act of 1998; 

"Minister" means the Minister for Justice, Equality and Law Reform; 

"Regulation" means a regulation in these Regulations; 

"restricted activity investment product intermediary" has the meaning assigned to it in section 2 of the Act of 1998; 

"the Society" means the Law Society of Ireland. 

2. Other words and phrases in these Regulations shall have the meanings assigned to them by the Solicitors Acts, 1954 to 1994, or by the Act of 1995 or the Act of 1998.
3. The Interpretation Act, 1937 shall apply for the purpose of the interpretation of these Regulations as it applies for the purpose of the interpretation of an Act of the Oireachtas, except insofar as it may be inconsistent with the Solicitors Acts, 1954 to 1994 or the Act of 1995 or the Act of 1998 or these Regulations.
  
1. A solicitor, who is not an authorised investment business firm, who applies to the Society for a practising certificate in respect of a practice year commencing after the 31^st day of December, 1998, shall, as a condition precedent to being issued by the Society with a practising certificate, undertake to the Society that:
1. he will only provide investment business services or investment advice to clients incidental to the provision of legal services to such clients, 
2. he will not hold himself out as being an investment business firm, and
3. in providing investment business services or investment advice to clients in a manner incidental to the provision of legal services to such clients and when acting as an investment product intermediary, he will not hold an appointment in writing other than from -
1. an investment firm authorised in accordance with Directive 93/22/EEC of 10 May 1993 by a competent authority of another Member State, or an authorised investment business firm (not being a restricted activity investment product intermediary or a certified person), or a member firm within the meaning of the Stock Exchange Act, 1995, or
2. a credit institution authorised in accordance with Directives 77/780/EEC of 12 December, 1977 and 89/646/EEC of 15 December, 1989, or
3. a manager of a collective investment undertaking authorised to market units in collective investments to the public
which is situate in the State or the relevant branch of which is situate in the State. 
2. A solicitor, who is not an authorised investment business firm, who applies to the Society for a practising certificate in respect of a practice year commencing after the 31^st day of December, 1999 and who is or last was the holder of a practising certificate in respect of all or any part of a preceding practice year which commenced after the 31^st day of December, 1998 shall, as a condition precedent to being issued by the Society with the practising certificate so applied for, warrant to the Society that he has complied with the undertakings to the Society provided for in clauses (a), (b) and (c) of Regulation 3 during that preceding practice year.
3. A solicitor in respect of whom a practising certificate is in force, who is not an authorised investment business firm, who provides investment business services or investment advice to a client incidental to the provision of legal services within the terms of his undertakings given to the Society pursuant to the requirements of clauses (a), (b) and (c) of Regulation 3 and who receives a fee, commission or other reward therefor other than from that client which is in excess of the amount or value of £75 (seventy-five pounds) shall, as soon as practicable after such receipt, disclose that fact in writing to such client.
4. A solicitor, who is an investment business firm or who is an insurance intermediary in one or more of the circumstances set forth in section 47(1)(a) or (b) of the Act of 1998 and who applies to the Society for a practising certificate in respect of a practice year commencing after the 31^st day of December, 1998, shall not be issued with such practising certificate unless the solicitor provides to the Society due evidence in writing of –
(i) having been authorised by the Bank, in accordance with section 10 of the Act of 1995, as an authorised investment business firm, or  

(ii) having informed the Bank and the Company that he is an investment firm for the purposes of section 47(1)(b) of the Act of 1998;

1. payment by him of such contribution to the fund established and maintained pursuant to section 19 of the Act of 1998 as may be required by the Company under section 21 of the Act of 1998;
2. having in place, valid and irrevocable for at least the duration of the practice year in question, a bond or bank guarantee and a policy of insurance, each acceptable to the Society, by way of providing indemnity against losses that may be suffered by a client in respect of default (whether arising from dishonesty or from breach of contract, negligence or other civil wrong) on the part of the solicitor, or any employee, agent or independent contractor of the solicitor, as shall, in the opinion of the Society (taking into account the maximum amount of compensation for default that would be payable to a client secured by reason of the payment made by the solicitor referred to in clause (b) of this Regulation), be equivalent to the indemnity against losses that would be provided to a client of a solicitor in the provision of legal services by means of – 
1. the Compensation Fund as provided for in accordance with section 21 (as substituted by section 29 of the Act of 1994) of the Act of 1960, and 
2. the minimum level of cover as provided for in accordance with The Solicitors Acts, 1954 to 1994 (Professional Indemnity Insurance) Regulations, 1995 (S.I. No. 312 of 1995) made by the Society under section 26 of the Act of 1994.
1. Where, in the course of a practice year, a solicitor, in respect of whom a practising certificate is in force, proposes to become an investment business firm or an investment firm in one or more of the circumstances set forth in section 47(1)(a) or (b) of the Act of 1998, the solicitor shall notify the Society in writing of that fact at least seven days before such proposed event and shall, within fourteen days of such notification, comply with the provisions of Regulation 6 as if he was then applying to the Society to be issued with a practising certificate for that practice year.
2. Where the Society are of opinion that a solicitor to whom clause (a) of this Regulation applies has failed to comply with the requirements of that clause, the Society shall deem such failure as serious and as warranting the making of an application by the Society to the President of the High Court for an order pursuant to section 58 of the Act of 1994.
  
5. Where an authorised person attends at a place of business of a solicitor pursuant to section 66 of the Act of 1954 (as substituted by section 76 of the Act of 1994), the authorised person may require the solicitor to make available to him such accounting records as the authorised person deems reasonable and appropriate to show that there has been compliance by the solicitor with the requirements of these Regulations.

Dated this fourth day of November, 1998 

Signed on behalf of the Law Society of Ireland pursuant to section 79 of the Solicitors Act, 1954: 

  

___________________________ 

LAURENCE K SHIELDS 

PRESIDENT OF THE LAW SOCIETY OF IRELAND 

  

I hereby consent, as required by section 30A(1) of the Solicitors (Amendment) Act, 1994 (as inserted by section 46 of the Investor Compensation Act, 1998), to the making of the above Regulations. 

  

Dated this day of November, 1998 

  

____________________________ 

JOHN O’DONOGHUE, T.D. 

MINISTER FOR JUSTICE, EQUALITY AND LAW REFORM

EXPLANATORY NOTE 

(This note is not part of the Instrument and does not purport to be a legal interpretation) 

The principal purpose of the Instrument is to provide that - 

• a solicitor, who is not an authorised investment business firm or who does not hold himself out as a provider of investment business services or investment advice, who applies to the Law Society of Ireland for an annual practising certificate will undertake: (a) only to provide investment business services (which include the activities of an insurance intermediary) or investment advice to clients incidental to the provision of legal services to such clients; (b) not to hold himself out as being an investment business firm; and, (c) when providing such incidental services and acting as an investment product intermediary, not to hold an appointment in writing other than from Central Bank of Ireland-authorised financial firms, institutions or persons situate in the State;
• a solicitor, in respect of whom a practising certificate is in force who also chooses to operate as an authorised investment business firm providing investment business services (which includes the activities of an insurance intermediary) or investment advice not incidental to the provision of legal services, or who holds himself out as providing such services or advice, will be required to provide forms of indemnity against losses due to his default, that may be suffered by clients to whom he provides such non-legal services, of an equivalent level to that provided (under the Solicitors Acts, 1954 to 1994) by law to clients who are in receipt of legal services from a solicitor in respect of whom a practising certificate is in force but who is not so operating;
• other incidental matters.