While the focus of 2003 was about consultation and discussion, this year will be about the practical implementation of the rules.

The final rules are set to be published at the end of this month. ...

While the focus of 2003 was about consultation and discussion, this year will be about the practical implementation of the rules.

The final rules are set to be published at the end of this month. And from the middle of the month, the FSA will begin to accept applications for authorisation. Brokers will need to ensure that they have the plans in place to be compliant by 14 January 2005.

For many the compliance process is already under way - and this week, Dick Tucker of broker Stuart Alexander describes his firm's approach to regulation.

But for others, the process of achieving compliance is nowhere near as advanced. For those it is vital that compliance achieves the highest priority. The FSA will not give firms a period of grace - if, on 14 January 2005, a firm is not compliant it cannot trade. The law is fixed, the FSA cannot deviate from it.

Thankfully, it appears that the vast majority of brokers are now focused on regulation. The complacency that was common last year has vanished.

On a lighter note, estimates have been made of the amount of paper produced by the FSA during its time as regulator of the financial services sector.

According to Compliance Solutions managing director Gary Dixon, in the two-year period, the FSA has published nearly 23,000 pages of consultation. This was contained within 203 documents, of which 55 were over 100 pages and three were over 1,000 pages in length.

Dixon calculates that this amounts to, on average, 44 pages every working day, or six pages of consultation every working hour of every day. Put end-to-end this would be over 4 miles of A4 paper.

Pity the poor person who had to read them all. Brokers looking at the FSA's application form and handbook while recovering from the Christmas excess should be thankful they don't have to.

Becoming a principal is not what we want
Most of R&SA's intermediaries do not want appointed representative status, but there are some groups which it would suit, says Blyth Morris

Clearly brokers and intermediaries across the country will have their own views about FSA regulation, but the general consensus from our key brokers and intermediaries is that they will be looking to become directly authorised or are considering regulatory networks.

If our contacts are a representative sample, appointed representative (AR) status doesn't look to be the preferred option for those in the industry. We will continue to monitor the situation over the coming months, but I don't expect it to change.

As you will have already read in Insurance Times, we are, in the main, not expecting to become principals to full-time brokers and intermediaries. However, we are willing to discuss that option with the affinities, associations, property managers and investment managers that we deal with.

There could be a role for ARs in this group and we are currently talking to a number of organisations about their FSA status.

The FSA states that the principal is responsible for ensuring that the AR is:

  • Fit and proper to deal with clients

  • Able to deliver the same level of protection to clients as if they had dealt with the principal itself

  • Solvent, suitable and without close links which would be likely to prevent its effective supervision by the principal.
  • In practice, this extends to how ARs operate day-to-day, such as in selling and administration, staff competence, complaints handling, business continuity planning and approved persons' framework.

    As the principal is taking on the risk, the cost - including the capital requirements relating to customer money handling - and the responsibility for the AR, the relationship will naturally change.

    Our current thinking is that if we were the principal we would undertake an annual or biannual audit of the AR and its business. Given that this would include looking in detail at the AR's processes and results, isn't it better for an unconnected third party to carry out these reviews?

    Anyone considering the AR route will not only have to implement the requirements of the FSA, and satisfy his principal that he is worth both the risk and the cost, but he will also be monitored by an organisation which could well be more stringent and demanding than the FSA.

    AR status may be the best option for some in the industry but we believe it would be wrong to think it will be the easiest one.

  • Blyth Morris, FSMA director at Royal & SunAlliance