FSA costs to shut 25% of brokers Expert warns of possible £900m toll

Up to 25% of all brokers could be driven out of business by the cost of complying with FSA regulation, a compliance expert warned.

Gary Dixon, managing director of FYV Corporate Resourcing, said that between 20% and 25% of all brokers could close as a result of the high costs of complying with the rules, to take effect in October 2004.

Dixon said FSA regulation would cost at least £200m and possibly up to £900m across the industry.

He based his calculations on the assumption that to hire a compliance officer would cost a medium-sized broker an average of £27,500 per annum. For the 7,000 members of the GISC alone, this would total £200m.

This option would be uneconomical for smaller firms, which could buy in advisory services. But doing so would result in lost management time, unearned

fees and commissions that could easily total £137,000 per firm, or £900m across the industry, he said.

He estimated that up to 25% of brokers would

be forced out of business both by the costs and the sheer amount of work involved in complying with the mandatory FSA regime.

Dixon said he "desperately hoped" that he had over-estimated the number of brokers that would close.

But the high average age in the industry and pressure from declining brokerage incomes added to the likelihood of broker closures.

He said: "The first seeds will be sown over the next four or five months as people digest FSA pronouncements.

"By this time next year people will decide to retire or run down their businesses."

Some brokers could group together to cut costs by sharing a compliance officer, but Dixon predicted that networks would struggle to attract brokers.

"They will have a very tight timetable to attract a broker that's already fed up with the prospect of the new rules," he said.