After a busy first year, Stephen Bland, director of small firms at the FSA, clarifies the FSA's role and what it expects of smaller general insurance brokers

Essentially, we all want the same goal for general insurance in the UK: a healthy market in which firms have a substantial and profitable business and customers receive a fair deal. If we achieve this, everyone benefits: consumer, broker - and regulator. To make further progress towards our shared goal, we need to be clear about what general insurance brokers can expect from the FSA, and what the FSA expects of them.

Broker expectations
The way we regulate firms depends on the risks we believe each firm poses to the objectives given to us by parliament. It is unlikely that individual smaller brokers will impact significantly on these objectives, so these firms are subject to light-touch regulation. For instance, the firm contact centre is their primary contact with the FSA, rather than a named appointed contact, and we do not regularly visit them.

However, we believe smaller general insurance brokers pose a risk to our objectives collectively. The challenge for the FSA is to find the key risks and deal with them in a proportionate way.

Over the past 12 months we have continued to recruit people from the industry and to develop our staff. We now have the required systems to identify market and firm risks, understand them and then advise small firms how to avoid them.

This risk-based approach relies on clear communication of two important areas: our strategy (so firms understand why we are doing it and the progress we are making) and the results of our work (so firms can make changes where necessary).

Each year we set out our strategy in the FSA business plan, and we review how effective we have been in our annual report. This year's report (published this week) concluded: a good start for general insurance regulation, but some way to go. We are concerned brokers are not making the most of the help available from us.

A tailored version of the annual report for small firms and details of our annual public meeting in London on 27 July can be found on our web pages for small firms. We are hoping to see more small firms attend this year.

We now aim to publish the results of our work in the form of good practice guides with a view to providing ongoing assistance to firms. We have a number of self-help guides on the small firms web pages, including disclosure, client money, training and competence and the retail mediation activity return (RMAR) and we shall be continuing to add to these.

Of course, communication is a two-way process and brokers are invited to meet FSA staff throughout the year at various events. Over the past 12 months we have hosted 22 roadshows in 10 locations across the UK, 650 surgeries (one-to-one meetings with a firm) and nine dinners (to hear and learn from local small businesses).

Over 4,500 firms attended FSA workshops. Our firm contact centre provides advice throughout the year. General insurance brokers should make use of these opportunities.

Encouragingly, our messages are being received by brokers. Our communications survey, published in February, told us that small general insurance firms are receiving newsletters, emails and are accessing our web pages.

But we appreciate we have a long way to go to reach all brokers - especially those for whom regulated insurance business is only a secondary activity. We will, however, do more to improve our communication with firms - receiving the message is only half of the story - we want to see changes made as a result.

FSA expectations
In summary, we expect brokers to:

1. Form good relations with us: be open and cooperative. This means sending in regulatory returns accurately and on time, helping with FSA research and paying fees on time. We also expect brokers to volunteer information that we should know about: instances of fraud, for example

2. Take time to consider the relevant FSA communications I have mentioned above

3. Most importantly, think about how the good practice recommendations that we publish apply to their firm.

I appreciate that this is sometimes easier said than done, but small firms can adapt to regulatory change. For example, we are seeing timely submission rates for the RMAR approaching 90% despite early concerns.

Future issues
We are currently looking to see if brokers:

  • Sell protection products (such as payment protection insurance and critical illness) in a way that treats customers fairly
  • Provide customers with appropriate documentation, products and - where applicable - advice
  • Understand the difference between advised and non-advised sales and how this affects the procedures that firms must follow
  • Arrange adequate protection for any client money they hold
  • Handle complaints in an appropriate way.
  • We are also looking to see if:

  • Small networks involved in general insurance (and mortgage) business have suitable controls over their appointed representatives
  • We can make RMAR easier to complete and more focused.
  • The results of this work should be considered and used by brokers. The results will be communicated in the usual way - a good starting point is to look at our website.

    Principles-based regulation
    General insurance brokers should also be aware that we are increasing the pace towards developing a more principles-based approach to regulation.

    The FSA's principles for businesses express what we and firms should be trying to achieve in broad terms rather than detailed rules. They focus on where we want to be (in terms of better business practices, such as Treating Customers Fairly) and less on how we get there.

    By setting out what action and behaviours we expect, brokers can decide how best to achieve them in a way that fits their own circumstances and business model.

    Our current focus is on helping general insurance brokers as a whole to improve their level of compliance in areas where we identify material risks to our objectives.

    We will, however, take supervisory or - indeed - enforcement action where we see non-compliance resulting in customers not getting a fair deal and actual consumer detriment - especially where we have issued help on how to comply in that area.

    I believe that regulation of general insurance brokers has got off to a good start, but

    I would be the first to acknowledge that we have some way to go to achieve our shared goal. IT

    ' Stephen Bland is director of small firms at the FSA

    More information on the issues raised here can be found at