Charles Maddocks says firms that grasp FSA regulation have become more successful and have opened up more opportunities

Don't look now, but the FSA is about to start an effectiveness review of the GI regulatory regime. It will focus on the extent to which regulation is delivering the intended outcomes to, in particular, retail consumers.

It has a number of envisaged outcomes. These are:

  • Capable and confident consumers
  • Clear, simple and understandable information available for, and used by, consumers
  • Risk based and proportionate regulation
  • Soundly managed and well capitalised firms who treat their customers fairly.
  • Most intermediaries believe the current regime does not meet all of these outcomes. That regime has been implemented in a way which increases intermediaries' costs and workloads. And many intermediaries argue that "they were doing it anyway".

    Many are of the opinion that regulation has simply been a burden with no benefits. It is our belief that there are benefits. But only for those who recognise and grasp the opportunities presented.

    Better documented
    Principle for Business 3 requires firms to take reasonable care to organise and control their affairs responsibly and effectively, and with adequate risk management systems. Many intermediaries have had to move from an informal approach to the management of their businesses, to more structured and better documented policies and procedures.

    Divisions of responsibility and lines of authority are now clearer. Job descriptions are up-to-date, and enhanced management control in terms of compliance monitoring, board meetings, business plans and regular accounting enable managers to have a firmer grip on the businesses. Or at least it should.

    Business risk analysis and mitigation are requirements, and, in covering much more than just disaster recovery, protect the business and staff from unwelcome events.

    Management has therefore had to adopt a more comprehensive approach to the control of their business. This hopefully reaps benefits for the firms and the individuals themselves.

    A successful 'approved person', with a demonstrable history of applying Treating Customers Fairly (TCF) and regulatory compliance, can only be enhancing his/her career prospects as well as the success of the firm.

    It is obvious, but well-run businesses require competent and well-trained staff, who know what tasks they are required to perform, have the tools to complete those tasks, know the yardsticks by which they will be assessed and are assessed on a regular basis.

    The provision of training to fill competency gaps, and the attention that all members of the organisation have to apply to TCF has, in many cases, assisted in producing more confident staff with higher morale. This leads to increased sales and renewal retention. This is especially true where staff have provided input into their own training needs analyses and training plans.

    The service provided by competent and helpful staff employed by intermediaries contrasts favourably with that provided by many call-centre environments.

    Several of our clients have reported that, as a result of accurate assessment of customers' demands and needs and the identification of additional requirements, the opportunity to cross-sell or up-sell has increased leading to higher volumes of business and commissions.

    Much has been said about the complaints process being stacked in favour of the complainant. In practice, few intermediaries have seen an upsurge in the number of complaints following regulation.

    Authorised firms have largely welcomed the involvement of an independent adjudicator (Financial Ombudsman Service) to defuse otherwise intractable complaints issues.

    Firms are now required to record and report complaints. This enables an assessment of areas which are giving rise to problems, and can assist in identifying staff competency gaps. The plugging of these problems and gaps leads to better service standards and profitability. Complaints cost time. So much better to avoid them in the first place.

    It has sometimes been unclear as to who the intermediary has acted as an agent for - the insuer or the client. As regards premiums received from clients, the FSA rules now clarify to all parties in an insurance transaction who is holding money on behalf of whom.

    While the correct procedures may be complex to establish initially, clarity in the terms of business agreements for insurers and clients should provide more open disclosure to the customer and greater confidence in buying.

    The benefit here is for more stable firms, able to cope adequately with market fluctuations and adverse variances. The stripping-out from the balance sheet of insurance assets and liabilities, and in due course goodwill, reveals the true asset value of the intermediary. The FSA's capital requirements provide an absolute minimum benchmark against which firms can assess their ability to survive in the long-term.

    There is no aspect of a well-run intermediary in which TCF should not play the most vital role. That is because TCF is a state-of-mind rather than a set of rules. The adoption of TCF therefore centres all activities of the firm on what is fair to the client, and provides a service to the client which differentiates it from its less well-run competitors.

    Whether it be in the area of product design, marketing, advertising and promotions, staff competency and supervision, sales interface, claims handling, premium handling, complaints handling or after-sales service in general, the embedding of TCF should lead to enhanced customer satisfaction, increased added-value and, as a consequence, improved productivity, retention rates and profits.

    There's an old saying about "making a virtue out of a necessity". All intermediaries are now in a regulated environment, and it will not go away.

    While there has been one-off (and on-going) costs and effort in achieving and maintaining compliance, it is possible for firms to embrace the regulatory regime by practising the principle of proportionality and by so doing, improve the effectiveness, efficiency and profitability of the business.

    There is no doubt that some firms have already done that. It should be the aim of all to do so. IT

    ' Charles Maddocks is marketing manager at Insurance Compliance Services