Gaining authorisation is just the first step, after that the FSA will be expecting a continuing high standard of business management, says Oliver Lodge
For insurance intermediaries, gaining authorisation by the FSA is a necessary condition for continuing in business beyond 14 January 2005. But is by no means sufficient. Firms that gain authorisation, particularly by claiming that they are, or will become, compliant with FSA requirements, will run a major risk of regulatory intervention and penalty if they do not follow through with their promise to the regulator. The aim of your authorisation project should therefore be to learn to drive safely, and not merely to pass the test. You need to achieve continuing compliance from day one and there is a mass of detail that must be mastered. You will have to understand and comply with client money rules, capital adequacy, professional indemnity (PI) insurance requirements and so on. But, as with driving, where mastery of the art of parallel parking or three-point turns does not guarantee safe driving, so the detailed rules are not necessarily the best place to start in preparing for authorisation.Instead, it will be important that you begin by thinking about what the FSA wants to achieve through authorisation and supervision. What will they expect of you? What strategic changes will you need to make if you are to survive in the new world? The FSA can help. It is running a series of workshops over the coming months (see its website www.fsa.gov.uk for details). Attending one of these could help you get a feel for the FSA's approach and its objectives. It should also help you assess the scale of the problem you face in your firm and to plan how you will tackle it.But you should not put off your preparation until you can get to a workshop. Do not underestimate the scale of the task. There is much that you can and should be getting on with now. Where should you start?
Business principlesBegin with the FSA's Principles for Business (PRIN in the language of the FSA Handbook). These are a set of high-level principles that apply to all regulated businesses. They cover such things as the obligation to treat your customers fairly, and to conduct your business with integrity, and to be open in your dealings with the regulator. These principles are rules in their own right. The FSA may take disciplinary action against you personally, or your firm, if they consider you have failed to conduct your business in accordance with these principles. They do not need to show breach of any rule in detail. Of course you know that you treat your customers fairly and act with integrity. But do you know what standards the FSA expects?Find out what the FSA expects of directors and senior management. In contrast with the approach taken by previous regulators, a basic plank of the FSA's thinking is that it is for boards and senior managers to manage their businesses in a way which identifies and manages the risks to which they are exposed, or to which they may expose their customers.Discover the FSA's Threshold Conditions. These are the fundamental conditions which all firms need to satisfy to achieve authorisation. More importantly they are continuing obligations. You need to satisfy them at authorisation and at all times thereafter. Of these the most important for you are likely to be that your firm has "adequate resources" and that the firm is "fit and proper". You need to be aware that rules on capital and PI cover, which you will read when you get on to the detailed rules, are minimum requirements. The FSA is free to take the view that in the particular circumstances of individual firms, higher levels may be needed - particularly where they believe that it is being managed with inadequate attention to the risks it is running. "Fit and proper" may seem an entirely separate issue, but there are overlaps. Key issues for the FSA here are the competence and experience of management, and its commitment to managing the business with integrity and in compliance with its regulatory obligationsWhen you have reached - and kept - these high level requirements, you will be ready to get to grips with the detailed rules, with setting in motion training throughout your firm, and with establishing compliance procedures.
