Chapter 5

Question 1

In many cases, transactions performed by solicitors will fall outside the scope of FSMA regulations (i.e. there will be no need to obtain FCA authorisation in order to perform these transactions), due to which three reasons?

Answer 1

(a) they are not regulated investments at all (e.g. National Savings products, which are specifically excluded from the definition of securities); or
(b) although they are regulated investments, the activity relating to the investments is not regulated (e.g. they are providing generic advice only); or
(c) while the activity relating to the investments is regulated, one or more exclusions apply under the RAO (e.g. the ATP exclusion).

Question 2

Where a person, acting in a business capacity, carries on by way of business an ‘activity of a specified kind which relates to an investment of a specified kind’ to which no exclusion applies, what must that person do?

Answer 2

obtain authorisation from the FCA (see Chapter 4 above); or alternatively
avoid authorisation if it can claim any of the exemptions.

Question 3

What are the four big exemptions to ‘activity of a specified kind which relates to an investment of a specified kind’ ?

Answer 3

1) The Treasury can make an order under section 38 FSMA providing that a certain person or class of persons are exempt from the general prohibition. It has done this in order to exempt, inter alia, the Bank of England and the International Monetary Fund.
2) Agents which only sell the products of one particular company and which are not employed by that company (“tied agents” or “appointed representatives” under section 39 FSMA) will also be exempt, because the authorised person will be responsible for any regulated activity carried on by its authorised representatives.
3) Where the agent is employed by the authorised person, then the latter’s authorisation will cover him (although he would need to be approved too).
4) A general exemption (the ‘incidental’ exemption - provided the activity arises out of a professional service being provided to the client - see below), particularly important for solicitors, under section 327 FSMA, for members of professions carrying on exempt regulated activities.

Question 4

In the context of UK law, what does incidental mean?

Answer 4

In the context of UK law, incidental means something that is not the main or primary purpose or activity, but rather something that is secondary or additional to it. An incidental activity is one that is subordinate or connected to a main activity but is not essential to it.

Question 5

Part XX of the Financial Services and Markets Act (FSMA) provides an exemption from FCA regulation for professional firms. What was it?

Answer 5

Part XX of the Financial Services and Markets Act (FSMA) provides an exemption from FCA regulation for professional firms that carry out regulated activities. But these are not their main business activity (the activities are “incidental”). This exemption also applies to firms that provide services that do not require FCA protection for reasons of investor protection or market integrity. To qualify for this exemption, the profession must be supervised by a designated professional body (DPB), and the Treasury has designated The Law Society as one such body.

Question 6

What is the “COPS rule” and how does it compare to the “necessary exclusion” according to section 67 of RAO?

Answer 6

The Complementary to Other Professional Services (COPS) rule (embedded in section 327 FSMA - part XX) exempts certain professional firms, including solicitors, from FCA regulation if their regulated activities are incidental to their main professional activity, and their profession is supervised by a designated professional body (DPB) recognized by the Treasury. This means that solicitors can carry out certain regulated activities, such as giving advice on investments, without being regulated by the FCA if it is incidental to their main business of providing legal services.

In contrast, Article 67 of the RAO provides a general exclusion from the requirement to be regulated by the FCA for any activity carried out in the course of carrying on a profession or business which does not otherwise consist of regulated activities, and which may reasonably be regarded as a necessary part of other services provided in the course of that profession or business. This exclusion is not limited to any specific profession or body, and the activity in question must not be remunerated separately from the other services provided.

Therefore, while both the COPS rule and Article 67 provide exemptions from FCA regulation for certain activities carried out by professional firms, the COPS rule is more specific to solicitors and other designated professional bodies, while Article 67 is a general exclusion that applies to any profession or business as long as certain conditions are met.

Question 7

What does the “COPS rule” stipulate?

Answer 7

The regulated activity (i.e. the financial work) cannot be carried on in isolation for a client; rather, it must arise out of or be complementary to some other (non-regulated) professional service being provided by you to the particular client concerned (e.g. legal work).

Question 8

Give examples to the “COPS rule” for corporate or matrimonial work, conveyancing, winding up an estate, or divorce settlement.

Answer 8

In corporate or matrimonial work: giving legal or tax advice or drafting documents (the primary service) where regulated investments are also involved.

In a conveyancing transaction on behalf of a client: dealing with the Land Registry (the primary service) and also arranging an endowment or pension mortgage as a complementary part of your service to that client.

Selling securities as part of winding up an estate or transferring securities as part of a divorce settlement.

Question 9

The “COPS rule” requires the “incidental only test”. What criteria have to be assessed?

Answer 9

1) The activities carried out by the firm (which would otherwise be regulated) must constitute a minor part only of the firm’s professional services to its clients (i.e. less than 50% of the firm’s income must come from investment business).

Further qualitative factors, however, will also be relevant in judging whether activities are incidental, viz.:

2) The scale of regulated activities in proportion to other professional services provided to the client;
3) whether and to what extent the exempt regulated activities are held out by the firm as separate services (e.g. as a separate business conducted in isolation from the provision of professional services); and
4) The impression given of how the firm provides those activities (e.g. through advertising its services).

Thus, even if the regulated services can be shown to contribute a minor part only of the firm’s services as a whole, the way in which the services are advertised and/or presented as a separate business within the overall practice could mean that the services will not be considered as being ‘incidental to’ the firm’s services as a whole.

Question 10

What does the abbreviation viz. stand for (legal context)?

Answer 10

The abbreviation “viz.” is short for “videlicet,” which is a Latin term that means “namely” or “that is to say.” It is often used in legal writing to introduce a specific example or to clarify a previous statement.

Question 11

Case: When winding up a deceased’s estate, the co-executor wants to have advice on how to invest his share of the estate. Does this arise out of or is complementary to the provision of the probate professional services?

Answer 11

No, this is not complementary to the legal professional services.

Question 12

In a probate matter, where the executor is your client, can you give advice to the beneficiary following the COPS rule?

Answer 12

No, both services (legal service - primary service) and the sale (the otherwise regulated activity) has to be supplied to the same client.

Question 13

You successfully broker a settlement for the specific performance of a contract in which your client will purchase a certain number of shares in the other side’s company.
The activities of presenting the other party with a cheque on behalf of your client, drawing up a stock transfer form and submitting the completed form to the company secretary for registration of the transfer of ownership would all constitute the regulated activity of arranging a deal under the FSMA. Does the COP rule apply here?

Answer 13

Even if the above activities were not reasonably regarded as comprising a necessary part of the negotiation services (‘the necessary exclusion’ under the RAO), the Part XX FSMA general exemption should apply, since the arrangements arise out of and are complementary to the provision of a professional service to the client (negotiation of a settlement), and the manner of providing the service will be incidental to the provision of the negotiation itself.

Question 14

A case in which you negotiate a settlement in a personal injury case in which your client will receive a lump sum payment, and the client now seeks your advice on how best to invest the money. Does the COP rule apply here?

Answer 14

No, such investment advice would not arise out of or be complementary to the litigation work done for the client, and would not therefore be exempt under Part XX FSMA.

Question 15

For the COP rule (Part XX of FSMA) to apply, numerous factors must be met. What are those?

Answer 15

1) Membership of a profession (e.g., solicitor)
2) Complementary to other Professional Service (COPS)
3) Incidental-Only Test
4) Duty to Account for any Commission
5) Activity not prohibited by SRA’s Rules

Question 16

For the COP rule to apply, the Duty to Account for Any Commission must be tested. What does that mean? What does accounting mean?

Answer 16

A solicitor cannot receive any reward or benefit from anyone other than the client without informing the client and accounting for it. This includes any commission or financial benefit received from a third party.

Accounting to the client does not mean simply telling the client that the firm will receive commission (or notifying the client that the firm has received commission). Rather the rule is that the commission will be held on behalf of the client.

Question 17

What is a commission?

Answer 17

A commission refers to a payment received by a solicitor or their firm from a third party, such as a life assurance company, for arranging a product or service for their client. This commission is often a percentage of the premium paid by the client for the product or service, and it represents a financial benefit to the solicitor or their firm.

Question 18

For the COP rule to apply, the Duty to Account for Any Commission must be tested. Accounting means that the commission will be held on behalf of the client. In which case is this not true?

Answer 18

The solicitor must hold the commission on behalf of the client, unless the client agrees in writing to set off the commission against any fee or gives their informed consent to the solicitor keeping the commission after full disclosure of the amount.

Question 19

For the COP rule to apply, the Duty to Account for Any Commission must be tested. Accounting means that the commission will be held on behalf of the client. What happens if the client gives ‘negative consent’, i.e. does not object to the commission being kept by the solicitor?

Answer 19

‘blanket’ consent (e.g. obtaining the client’s consent to retain commission through standard terms) or ‘negative’ consent (where the client omits to indicate that he does not consent to the solicitor’s retention of commission) will not suffice.

Question 20

For the COP rule to apply, the Duty to Account for Any Commission must be tested. If the client gives his informed consent to the firm’s keeping all commissions, having had full disclosure of the amount, what is the consequence?

Answer 20

If the client gives informed consent to the firm’s keeping all commissions, having had full disclosure of the amount, then the commission does not need to be held on behalf of the client. In other words, the solicitor or firm can keep the commission as their own financial benefit without breaching their professional duty to the client. However, it’s important to note that the client must be fully informed and give their consent in writing, and ‘blanket’ or ‘negative’ consent is not sufficient.

Question 21

For the COP rule to apply, the Duty to Account for Any Commission must be tested. Accounting means that the commission will be held on behalf of the client. What does ‘holding on behalf of the client mean’?

Answer 21

“Holding on behalf of the client” means that the commission received by the solicitor or the firm is not the property of the solicitor or the firm but rather belongs to the client. The solicitor or the firm must keep the commission in a separate client account and not use it for their own purposes.

Question 22

Under section 332 of the FSMA, what is the requirement to Designated Professional Bodies?

Answer 22

Designated professional bodies (DPBs) must make rules applicable to their members who are not authorized persons but carry on regulated activities in relation to the profession for which the DPB is established. These rules must ensure that the member only carries out regulated activities that are necessary for providing a particular professional service to a particular client.

Question 23

What are the two sets of rules that the Law Society has created following section 332 of the FSMA?

Answer 23

1) The SRA Financial Services (Scope) Rules
2) The SRA Financial Services (Conduct of Business) Rules

Question 24

1) The SRA Financial Services (Scope) Rules
2) The SRA Financial Services (Conduct of Business) Rules

What are the two most important differences between the two?

Answer 24

Purpose: The Scope Rules define the activities that are solicitors undertake without FCA authorization. The Conduct of Business rules regulate the manner in which solicitors’ firms should carry on regulated activities of the kind permitted by the Scope rules.

Violation: Violating the Scope Rules may result in a criminal offence according to section 23 FSMA. A breach could also result in a disciplinary action. Also, contracts resulting from the offence wouldn’t be enforceable. A violation of the Conduct of Business rules may ‘only’ result in disciplinary action by the SRA.

Question 25

What is the difference between the Law Society and the Solicitors Regulation Authority?

Answer 25

The Law Society and the Solicitors Regulation Authority (SRA) are two separate entities in the UK that play different roles in regulating the legal profession. The Law Society is the professional body for solicitors in England and Wales. It represents and promotes the interests of its members, provides them with support and guidance, and sets professional standards for them to follow. The Law Society also provides training and education to solicitors and monitors their compliance with professional conduct rules. On the other hand, the SRA is an independent regulatory body that is responsible for regulating solicitors and law firms in England and Wales. It operates independently of the Law Society and its main function is to protect the public by setting and enforcing standards for solicitors and law firms. The SRA sets the rules and regulations that solicitors must abide by, investigates complaints against solicitors, and takes disciplinary action where necessary. The Solicitors Regulation Authority (SRA) is a public authority in the UK. As an independent regulator of solicitors and law firms, it exercises public functions and has a duty to protect the public interest. It is subject to public law principles, such as the duty to act fairly and reasonably and to provide reasons for its decisions. The SRA is also subject to oversight by the Legal Services Board, which is a public body established by the Legal Services Act 2007 to oversee the regulation of legal services in England and Wales. In contrast, the Law Society is not a public authority. While it is a professional body that represents and promotes the interests of solicitors, it is a private organization and not subject to the same public law principles and oversight as the SRA.

Question 26

Part XX of FSMA contains section 327, which regulates exceptions to FCA regulated activities. While the SRA Financial Services (Scope) Rules regulate which regulated activities are prohibited for solicitors, the article refers to another source (legislation) that creates prohibits regulated activities under section 327. What is the name of the legislation and who issued it?

Answer 26

Non-Exempt Activities Order 2001, made by Treasury It basically enforces that certain activities are excluded from the exceptions following part XX (effectively revokes the exclusion). The SRA Financial Services (Scope) Rules refer to them as well. The difference is that the Non-Exempt Activities Order 2001 applies to all professions benefiting from part XX, while the SRA Financial Services (Scope) Rules narrow down the list of permitted activities even further.

Question 27

In general, the SRA Financial Services (Scope) Rule prohibit all activities. For advice, what services are permitted?

Answer 27

1) Negative advice (i.e. not to buy) 2) Obtaining advice from an ATP and passing this to a client, even without endorsing the ATP's recommendation 3) Endorsing a recommendation of an ATP 4) Explaining the transaction to the client and giving advice, provided this does not amount to a recommendation to enter the transaction in order to buy or sell

Question 28

SRA Financial Services (Scope) Rule permit what in relation to insurance distribution activities? (Rule 5.1) What does the solicitor need to do if they want to use that exception?

Answer 28

Solicitors may carry on insurance distribution activities as an ancillary insurance intermediary. They need to notify the SRA and give the permission for the SRA to inform the FCA.

Question 29

Solicitors may carry on insurance distribution activities as an ancillary insurance intermediary following rule 5.1 of the SRA Financial Services (Scope) Rule. What does that mean?

Answer 29

An ancillary insurance intermediary is a person or entity that carries on insurance distribution activities as an incidental part of their main professional activity or business, rather than as their primary activity. This means that the insurance distribution activities are not the main focus of their business, but are instead offered as an additional service to their clients. For example, a solicitor or an accountant may provide insurance products to their clients as part of their overall service offering. In this case, the insurance distribution activities are considered ancillary to their main professional activities. Insurance distribution activities are activities related to the sale or advice of insurance products. These activities may include: 1) Introducing, proposing or carrying out other work preparatory to the conclusion of insurance contracts 2) Assisting in the administration and performance of insurance contracts 3) Advising on insurance products, which includes giving recommendations to a customer about the suitability of a particular insurance product based on their needs and circumstances 4) Carrying out work related to the conclusion of insurance contracts, including negotiating the terms of the contract on behalf of the customer, issuing documents relating to the contract, and handling claims.

Question 30

What is meant with the "general prohibition" in relation to the FSMA?

Answer 30

Refers to section 19(1) FSMA - no person may carry out a regulated activity unless they are an authorized or exempt person

Question 31

What is the exception of "appointed representative" according to section 39 of the FSMA?

Answer 31

If a firm is authorized and the principal in the firm accepts the responsibility, then an employee of the firm can be an appointed representative. There must be a contract though. In this case, the employee is an exempt person.

Question 32

What orders are included in the so called "Treasury rules"? (not exhaustive)

Answer 32

The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO) The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO)

Question 33

In regard to Financial Services, what are the five most important legal sources that solicitors have to comply with?

Answer 33

FSMA 2000 Treasury Rules (e.g., RAO) Scope Rules Conduct of Business Rules SRA Code of Conduct

Question 34

The SRA Financial Services Conduct of Business Rules Part has been divided into three different sections - which'

Answer 34

1) Transaction & Investment related 2) Insurance Distribution Activities related 3) Credit related

Question 35

What SRA Financial Services Conduct of Business Rules exist regarding Transactions and Investments?

Answer 35

1) Status Disclosure (Rule 2) 2) Execution of Transactions (Rule 3.1) 3) Record of Transactions (Rules 4.1 to 4.2) 4) Record of Commissions (Rule 5.1) 5) Execution-only Business (Rule 7.1) 6) Safeguarding of Clients' Investments (Rule 6.1)

Question 36

SRA Financial Services Conduct of Business - Status Disclosure (Rule 2) - What does it mean?

Answer 36

Applies to firms using Part XX of FSMA Any such firm must avoid representation to a client that the firm is authorized. It must ensure that no impression is given to on its stationery or otherwise. In addition, the firm must give the client the following information in writing in a manner that is clear, fair and not misleading before providing a service which includes carrying on of a regulated financial services activity and in good time before the conclusion of a contract of insurance: -A statement that the firm is not authorized by the FCA -The firm's name and practicing address -The nature of the regulated activities and that they are limited in scope -A statement that the firm is authorized and regulated by the SRA -A statement explaining that complaints and redress (Wiedergutmachung) are provided through the SRA and the Legal Ombudsman -For insurance distribution activity: A statement that the firm is an ancillary insurance intermediary -A statement disclosing the prohibition on financial promotions (i.e. only permitted to communicate invitations or inducements in investment activities ("financial promotions") where these have been approved by an ATP or exempt person)

Question 37

SRA Financial Services Conduct of Business - Execution of Transactions (Rule 3.1) - What does it mean?

Answer 37

The firm must ensure that where it has agreed or decided in its discretion to effect a transaction, it must do so as soon as possible, unless it reasonably believes that it is in the client's best interests not to, i.e. in accordance with SRA Principle 7 (acting in the client's best interests) and the SRA Code of Conduct ("the Code"). Furthermore, clients should be kept fully informed of transactions effected on their behalf, unless the clients have indicated to the contrary.

Question 38

SRA Financial Services Conduct of Business - Record of Transactions (Rules 4.1 to 4.2) - What does it mean?

Answer 38

The firm must keep records of instructions from clients to carry out transactions and instructions to third parties to carry these out (for at least six years - Rule 8.1). A normal attendance note of telephone instructions must be kept on the client file (containing, for example, the name of the client, the instructions and the date thereof, plus the name of the third party) (Rules 4.1 and 4.2). As a matter of good practice, it is also worthwhile for the solicitor to record the time of the instructions, in order to prove that he acted promptly upon receipt of the instructions from the client (this is especially important when the investment (e.g. shares) is susceptible to changes at short notice).

Question 39

SRA Financial Services Conduct of Business - Records of Commissions (Rule 5.1) - What does it mean?

Answer 39

Both Part XX FSMA and the Scope Rules provide that a member of a profession cannot make use of the general exemption from the requirement for FCA regulation (authorisation) if he receives any pecuniary reward from a third party for which he does not account to the client. Under Rule 5.1, a firm must keep for at least six years (see Rule 8.1) records of commissions received in respect of regulated activities (in either a letter or a bill of costs) and how the firm has accounted to the client for such commissions. Any financial benefit has to be dealt with in accordance with Rule 4.1 of the Code. The benefit must be accounted for to the client. Where you receive a financial benefit as a result of acting for a client, you should pay it to the client unless you agree otherwise, such as to offset it against your fees or agree that you can keep it, but only where you can justify keeping it, you have told the client the amount of the benefit (or an approximation if you do not know the exact amount) and the client has agreed that you can keep it. In the case of commissions attributable to regulated activities, firms must also keep a record of the amount of the commission and how they have accounted to the client (Rule 5.1).

Question 40

SRA Financial Services Conduct of Business - Execution-Only Business (Rule 7.1) - What does it mean?

Answer 40

Where a firm acts for an execution-only client, a letter must be sent to the client, confirming that the client had not sought nor was given any advice from the solicitor in connection with the transaction, or that the client was given advice but nevertheless persisted in wishing to transaction to be effected, and in either case the transaction is effective on the client's explicit instructions. However, even if the client instructs the firm to effect a transaction without having received advice from the firm, the transaction may still not qualify as 'execution- only', because in view of the relationship between them, the client may reasonably expect the firm to indicate if the transaction is inappropriate. In any event, a firm may be negligent (and possibly in breach of the SRA Principles), if it fails to advise on the appropriateness or otherwise. In light of the above, a transaction will only be deemed execution-only where: * the firm assumes on reasonable grounds that the client is not relying on the firm as to the merits or suitability of the transaction; * the firm has advised the client that the transaction is unsuitable but the client persists in wishing the transaction to be effected.

Question 41

SRA Financial Services Conduct of Business - Safeguarding of Clients' Investments (Rule 6.1) - What does it mean?

Answer 41

Where a firm safeguards and administers a client's investments, it must operate 'appropriate systems', including the keeping of appropriate records, which provide for the safekeeping of assets. While the Rule does not specify these systems, these ought to include the following: * Registration of title to client's investments The client's investments should be separately identifiable from investments belonging to the firm and should be properly registered in the name of the client (or with his consent, in the name of a nominee). * Safekeeping of a client's assets The firm should not release the investments or title documents into the control or possession of another person without the client's consent. * Security arrangements The firm should have adequate security arrangements to safeguard the title documents. * Record of title documents A record should be kept for at least six years (Rule 8.1) on the client's file in respect of each individual client of all title documents held by the firm. The firm should keep (separately from the documents themselves) a central record of all the documents of which it has custody. * Checking title documents The firm should check the records against the title documents held, at least once a year, and investigate any discrepancy. * Reporting to clients The firm should send a client a statement, at least once a year, specifying the title documents held and identifying any which have been lent out or held as collateral. Where such assets are passed to a third party, the solicitor should obtain an acknowledgement of receipt of the property, and if they have been passed to a third party on the client's instructions, the solicitor should obtain such instructions in writing (Rule 6.2).

Question 42

What are the specific COB Rules applicable to Insurance Distribution Activities?

Answer 42

* Rule 9.1: The firm must take reasonable steps to ensure that all communications to the client are made in a manner that is clear, fair and not misleading and that marketing communications are always identifiable as such. * Rule 10.1: Before the firm concludes a particular contract of insurance, it must inform the client whether it is providing a personal recommendation about the insurance products offered, the procedures allowing clients and other interested parties to register complaints about the firm and information about the out-of-court complaint and redress procedures available for the settlement of disputes between the firm and its clients, whether the firm is representing the client or acting for and on behalf of the insurer, and whether the firm has a direct or indirect holding of 10% or more of the voting rights or capital in a relevant insurance undertaking, or whether that undertaking or its parent holds such an interest in the firm. * Rule 11.1: If a solicitor proposes or gives a personal recommendation for a contract of insurance, before conclusion of the initial contract and on its amendment or renewal (if necessary), the solicitor must provide the client with information on whether he or she is giving a personal recommendation on the basis of a fair and personal analysis, whether the solicitor is bound by contract as a tied agent to one or more insurance undertakings and, if so, provide the names of such undertakings or, if not, and advice is not given on the basis of a fair and personal analysis, provide the names of the insurance undertakings with which the solicitor does and does not conduct business. * Rule 11.2: If the solicitor is giving a personal recommendation on the basis of a fair and personal analysis, such recommendation must be on the basis of an analysis of a sufficiently large number of insurance contracts available on the market and must be in accordance with professional criteria regarding which contract of insurance would be adequate to meet the client's needs. * Rules 12.1 to 12.4: Before a particular contract of insurance is concluded, a firm must take reasonable steps to ensure that such contract is suitable for the client's demands and needs, adapt the details of it according to the complexity of the contract and the individual circumstances of the client, provide the client with a full written demands and needs statement, and the contract must be consistent with those demands and needs. Where personal recommendation is given, in addition to the statement, the firm must provide the client with a personalised explanation of why a particular contract would best meet the client's demands and needs. * Rules 13.1 and 13.2: A firm must not use an intermediary unless the person is registered to undertake insurance distribution activity or is not carrying out such activity in the EEA. A firm must check the Finance Services Register or the register of the home state of the intermediary (where carried on by an EEA firm) and use that intermediary only if that person is duly registered. * Rule 14.1: You must have in place and operate appropriate and effective procedures for registering and responding to complaints from a person who is not a client, in addition to your complaints handling obligations under the Code.

Question 43

What are the COB rules applicable to to Credit-Related Financial Services Activities?

Answer 43

This part of the COB Rules sets out the requirements where you undertake credit-related financial services activities for a client, such as entering into, or exercising rights under, a regulated credit agreement as a lender; credit broking; debt adjusting, counselling, collecting or administering; providing credit information or references; and agreeing to carry on any such activities. Rule 23 - Disclosure of information: * Where you undertake credit-related regulated financial services activities for a client, you must ensure that information in connection with such activities and any agreements to which they relate is communicated to the client in a way that is clear, fair, and not misleading (Rule 23.1). Where you carry on the activity of credit broking, you must indicate in any advertising and documentation intended for consumers or clients the extent and scope of your credit broking activities, in particular whether you work exclusively with one or more lenders or as an independent broker (Rule 23.2). Rule 24 - Regulated credit agreements: * Where you carry on a credit-related regulated financial services activity involving a proposed regulated credit agreement, you must provide adequate explanations to the client in order to enable the client to assess whether the proposed regulated credit agreement is suitable for the client's needs and financial situation. When providing such explanations, you must comply with the requirements of Article 5(6) of the Directive 2008/48/EC (the Consumer Credit Directive, enshrined in English law by numerous Consumer Credit regulations, as amended from time to time) on credit agreements for consumers (Rule 24.1). Before entering into a regulated credit agreement as a lender, you must assess the client's creditworthiness on the basis of sufficient information to enable you to make the assessment. Where appropriate, such information will be obtained from the client and, where necessary, from a credit reference agency (Rule 24.2). After entering into a regulated credit agreement where you are the lender, if the parties agree to change the total amount of credit, you must update the financial information you hold concerning the client and assess the client's creditworthiness before any significant increase in the total amount of credit (Rule 24.3). In the event of you assigning to a third party your rights as a lender in relation to a regulated credit agreement, you must inform the client of the assignment (Rule 24.4). Rule 25 - Appropriation of payments: * Where you are entitled to payments from the same client in respect of two or more regulated credit agreements, you must allow the client to put any payments made, in respect of those agreements, towards the satisfaction of the sum due under any one or more of the agreements in such proportions as the client thinks fit. Rule 26 - Consumer credit guidance: * Where you undertake credit-related regulated financial services activities, you must have regard to any guidance issued by the SRA from time to time relating to such activities (Rule 26.1).