Under the FSA's conduct of business rules brokers need to know what they must tell the client, says Ian Reynolds

Brokers will be especially hard hit by the FSA's disclosure requirements. In dealing with clients, brokers will need to be up to speed on status disclosure, product disclosure, commission disclosure and the intriguing 'oral' disclosure.

The status disclosure requirements are complicated by the freedom to be independent for some products, multi-tied for others and tied to a single office for others. The FSA has helped by producing example documents which are available on its website.

These documents are also useful in forcing brokers to be clear as to what status they will adopt in respect of each of the products they recommend. Between now and next January, key decisions will need to be made as to the status for each product and, in time, to meet printing and training deadlines. These decisions do not, however, need to be immutable.

Training will need also to be put in place on commission disclosure. While any fees charged need to be disclosed to all clients, there is no commission disclosure for retail clients.

But is it clear who is and who is not a retail client? The definition in the FSA's conduct of business rules (ICOB) is "a policyholder or prospctive policyholder acting outside his trade, profession or business". So clients will need to disclose their status too.

Product disclosure, or at least what is to be disclosed, is the responsibility of insurance companies. It can be either a policy summary or a key features document. Brokers and providers can agree for it to be sent directly to the policyholder by the insurer. Brokers will need to be clear with which insurers it has such an arrangement and for which providers they will need to retain copies of such documents. Again this has to be agreed and in place by 14 January 2005.

Whichever route is followed, in face-to-face meetings with clients, 'oral disclosure' is required. This is ICOB 5.3.1 (2) which states: "An insurance intermediary must, in good time before the conclusion of the contract, draw the attention of the retail customer to the importance of reading the policy summary, and in particular the section on significant or unusual exclusions or limitations."

Preparation for disclosure is not going to be a straightforward task. Experience drawn from life insurance provides two lessons for brokers. First, good quality training for all registered individuals is essential. Second, and more important, documentation must show that the procedures have been followed.

The FSA view is that "if it is not written down, it has not happened". Much anguish and compensation would have been avoided if this had been followed to the letter on the life side. So a vital proof of what has taken place and what has been given to the client will come from a broker checklist, preferably initialled by the client. Disclosure may only be a part of the new regulations but do not underestimate what is involved and how critical getting it right will be in the long run.

  • Ian Reynolds is a senior consultant at Beachcroft Wansbroughs Consulting