Time Running Out for FSA Broker Regulation

Monday, May 24, 2004
Moore Stephens has warned UK insurance brokers that failure to submit their applications for registration by the Financial Services Authority (FSA) by the due date of July 15 this year will mean that they will not be authorised to carry on business from January 15, 2005, when the new FSA regulations come into force.

The FSA published its final conduct of business rules on January 20 this year. And there is evidence to suggest that, despite the looming deadline for application, many brokers do not yet fully realise the extent of the detail and the depth of the information they are required to provide to the regulators. Indeed, in some cases, there is reason to believe that the need to be FSA-approved is not properly understood.

Writing in the latest issue of insured interest, the Moore Stephens insurance newsletter, Klara Sewell, a senior manager in the Moore Stephens Insurance Industry Group, says, "The new rules are not voluntary. The only option open to those brokers who - whether through inertia, unpreparedness or inability to comply - fail to go though the FSA application and authorisation process will be to act as the appointed representatives of FSA-licensed principals. For such brokers, the freedom to continue trading will come at the expense of their independence.

"Although the requirement to provide information during the application process will be most onerous for brokers at the larger end of the scale, with annual income in excess of £1million, the rules will apply to all intermediaries. So smaller brokers cannot afford to ignore their FSA requirements. In fact, as a point of best practice, they might usefully look at what the larger firms are required to do, and tailor it to their own situation."

The FSA registration process is going to be more rigorous than anything ever before faced by UK brokers. It will embrace, among other things, a risk-based evaluation of IT systems and controls, and a rigorous approach to regulatory business planning which will include financial resources and projects, compliance awareness, staff resources and levels of control over both internal and outsourced work.

Sewell concludes, "Brokers would be well-advised to seek professional financial advice before embarking on the form-filling exercise. They should be aware, also, that they are not limited when seeking such advice to their existing financial advisers, but are free to engage help from whomsoever they consider to be best qualified.

"Like the driving test, it's not so much about being able to comply with the regulations, it is about being able to show to the satisfaction of the examiners that you can perform to their requirements."

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