Biba is also concerned that members will continue to pick up bill from FSCS
Brokers and Insurers are being held increasingly accountable for activities they may have previously thought were not their responsibility, a law firm has warned.
The FCA confirmed yesterday it had handed down total fines of £15.5m to five people and two firms for actions that led to the collapse of three insurance firms: Millburn, Balva and European Risk Insurance Company.
Israeli businessman Shay Jacob Reches, who is at the centre of the actions, has been fined £1.05m and will pay £13.1m to the failed insurers.
Pinsent Masons senior financial services enforcement lawyer Michael Ruck said: “The final notices reflect the FCA’s ongoing interest in not only regulated activities undertaken by unauthorised firms but also the roles and responsibilities of those within the regulatory chain, for example intermediaries and brokers.
“Whilst each regulated firm has its own regulatory responsibilities the FCA has illustrated an ongoing willingness to consider where these responsibilities may overlap between firms and push the boundaries of who has previously been held responsible.
“Not only should due diligence be undertaken regarding the entities with whom a regulated firm is doing business but firms will increasingly look to clearly define who in the chain has responsibility for which actions.”
Biba blamed the events that led to the failure of three insurers on a combination of factors; the unrated insurers not having sufficient capital and the actions of the individuals named by the regulator.
Biba has not taken a definitive stance against unrated insurers, but the trade body has sought legal opinion about how a broker gets on if he is dealing with an unrated insurer.
Executive director Graeme Trudgill said: “The legal opinion was that using an unrated insurer and the intermediary’s duty of care in law are not compatible bedfellows.
“We don’t have a position, but the legal position is quite clear. You have a duty to your customer and you have to ask yourself, if the insurer has not got a rating, how am I exercising my duty of care?”
Biba also raised concerns that its members would continue to pick up the bill for insurer and broker failure from the FSCS levy.
Brokers are facing a £19m compensation levy from the Financial Services Compensation Scheme (FSCS) in the 2016/17 year, having paid nothing the previous year.
This is in addition to the 44% increase in brokers’ share of the FSCS running costs.