The FSA's prudential requirements for brokers are set to boost premium finance deals.
Brokers are considering the move to premium finance as a way of sidestepping solvency requirements that will be revealed in a consultancy document due to be published next month. It is understood that the options for solvency include maintaining a 5% solvency margin on the average client balance in hand or insurers guaranteeing premiums.
One broker said: "If there are too many restrictions brokers may decide it is no longer worth dealing with client monies and do a deal with a premium finance house."
In the past, brokers have avoided premium finance for large premiums where the money can be invested for short term gain before being passed up the chain.
Stuart Reid, joint managing director of broker Stuart Alexander, said shorter terms of credit from insurers coupled with low interest rates mean that many brokers can no longer make a return from invested premiums.
A shift to premium finance would raise questions about where premium finance providers, who are currently regulated by the Consumer Credit Authority, fit into the FSA's regulatory regime.
