Alex Peterkin says that small brokers must know their FSA compliance requirements, or suffer

The FSA recently gave an insight into the new plans for supervising and regulating firms who have been 'D' rated on the FSA risk register. (You are likely to meet this category if you have received an invitation to subscribe to the FSA's Forms Online.)

For these smaller firms it means: be compliant or suffer. Firstly, you will have to worry about the hit squads.

From Easter, so-called roving hit squads of FSA staff will be touring the country making sweep visits to insurance firms believed to be trading without authorisation. In the mortgage sector the FSA confirmed its jobs had been made easier when firms refused to trade with firms without appropriate authorisation numbers.

Many intermediary firms in insurance have not collected such authorisation numbers, or even asked for authorisation numbers. While this may be driven by fears of losing business, such open market practice means that things will run as smoothly as for the policing of mortgages.

Such raids rely on information collected on possible targets by geographical area. Trade bodies, consumer associations and members of the public, as well as secret shopping, play an important part in this process.

Our clients have already told us that they believe such mystery shopping may already have started where call centres exist. This may not have been the FSA itself. But our guess is that the FSA is allowing some time to collate and brief the targeting teams.

Unlawful trading
What is not so clear is what the FSA approach will be if, during such visits, it identify firms who are authorised, but have been trading with clients it believes have undertaken regulated activity, but in reality haven't.

With such trading itself creating risk in the market and being unlawful, just how will the FSA itself balance its statutory responsibilities with its legal requirements?

A special unit has been formed to deal with the review of financial promotions.

The FSA is trying to improve the clarity and transparency of the marketing blurb that firms produce. This unit will not simply focus on any one sector of the market, but will seek to raise awareness of just what the FSA expects from the application of its Conduct of Business rules.

These requirements are new to all general insurance products, and from our own straw pole, the current standards of disclosure and policy summaries in the insurance sector is very poor. The FSA seems to be very alert to this, together with the fact that over 50% of the new firms have never been regulated.

We believe that smaller firms should be preparing for that email or letter asking them to send in some of their product and sales information.

The FSA was clear that both the insurance teams and the promotions teams will try to deal with queries on the application of a specific rule, in any new promotion it remains up to the firms to decide for themselves what is compliant.

This simply reinforces its "do not advise" stance, and places the onus back on the management for knowing what their requirements are.

However, recognising that many firms will be new to this regulation, there is likely to be a period of grace in which firms are simply requested to change their documents rather than being fined.

Allowing firms some time to review and train their staff, this window could close probably as early as the latter part of this year.

Emphasis was also placed on the need for the FSA to be able to collect and process information in a timely manner. To that end, the new reporting requirements will help the FSA police the market. Firms that are slow to respond, or simply do not file returns, can expect a reaction.

Earlier presentations in the year from both dedicated supervisory teams and the enforcement team indicate that for some, this reaction will be both hard and fast.

Perhaps the single most consistent message the FSA has given to the market in the last few months is that size doesn't really matter when asking if they are watching you.

Size matters
But size does count if we are talking about assessing just how much of a problem you have if the FSA decides to call.

While larger and higher risk firms (referred to as A-C in the FSA risk register) may expect some supervisory relationship, smaller firms must make do with a faceless support unit. Unexpected surprises and delaying tactics are all likely to simply raise your profile and encourage the FSA to ask questions.

With so many new to this regulation, those who simply went through the motions of submitting an application form will have much to do to catch up with firms that invested time and money last year. Continuing to do nothing is going to be found out, and that will be sooner rather than later. IT

' Alex Peterkin is with FSA Solutions.


Data Protection Act

The article that appeared on the 24 February should have referred to the Data Protection Act [1998] not [1988].