The insurance industry's distribution chain is at risk if it fails to engage with secondary intermediaries on regulation, the FSA has warned.

FSA high street firms division director Sarah Wilson told Insurance Times that secondary intermediaries, such as vets and car dealers which sell insurance as an adjunct to their core business, were not registering with the FSA for authorisation.

She said that the failure of these businesses to appreciate the implications of regulation could have a significant impact on the industry's distribution chain.

"Insurers and primary brokers are dependent on the transaction with the customer. This takes place on the high street, often through the secondary market.

"The industry needs to make sure that it thinks about the impact of regulation right the way through the chain. Insurers and brokers have a part to play in getting the message through. They need to engage with the secondary market - and they need to do this now. They must participate as an industry to get this message through. It is a major issue for the insurance industry."

Wilson said that this issue highlighted the need for firms to look at regulation from a commercial perspective.

"Regulation cannot be pigeon-holed and left with the compliance division. It will increasingly affect the way that senior management thinks commercially and strategically. At this stage in the year firms need to engage with regulation at this level."

She added that this was something that firms had to do on their own. "The FSA will not come up with answers," she said.