Brokers worry over cost and complexity of becoming authorized
Britain's top 50 brokers have spent almost £20m on FSA regulation, according to research by Grant Thornton. And many are set to spend over £1m per year to keep compliant, said the survey.
Grant Thornton interviewed over 100 brokers and intermediaries late in 2004 to find out how they were coping with FSA regulation, which goes live tomorrow.
The survey revealed that the average one-off cost of meeting regulation was £350,000 for brokers in the top 50.
One firm had spent over £5m and just under 20% had spent over £1m. Outside the top 50 the average figure was £34,000. Worryingly, 40% of the top 50 and a similar proportion of firms outside the top 50 had no idea of the cost of regulation.
Almost 50% of the top 50 brokers reckon that they will spend more than £100,000 per year on meeting regulation, with almost 20% spending over £1m per year.
Now that the FSA is in charge, Grant Thornton asked intermediaries what key issues the FSA should address.
The three highest-scoring topics with nearly 60% each (brokers could vote in more than one category) were: unfair selling practices; poor controls in firms; and financial stability of companies. The other two issues raised were: unfair pricing and unfair contract terms.
Grant Thornton also asked: what impact will regulation have on trading? The top two answers were: reduced margins on insurance sales, with almost 40%; and systems and controls may not withstand FSA scrutiny, with more than 20%. More than 10% cited increased clarity for consumers over price and conditions as a cause of concern.
The scope, complexity and language of the FSA guidance was seen as the most challenging part of compliance, with 33% of brokers voting. A quarter of brokers said that training and compliance was the biggest challenge and 19% said that the introduction and documentation of procedures was the biggest challenge.
Grant Thornton analysed responses from the secondary market. It found that only 60% had submitted an application for compliance by the end of November 2004, compared with 93% for insurance brokers. And only 10% had completed changes in processes.