Brokers face action if they fail to guard against financial threats

Brokers have been warned to shape up or risk punishment by the FSA, which is concerned that some are still unable to show that they have adequate financial resources.

A ‘Dear CEO’ letter from FSA managing director of supervision Jon Pain has been sent to large brokers but is also being made available to other insurance intermediaries. An FSA spokesman said 7,000 firms in total are being targeted.

It comes after FSA supervisory work discovered that brokers are not paying close enough attention to matters that could “threaten the financial viability of their firms”.

It said firms are failing to meet ‘threshold condition four’, which requires them to have adequate resources at all times, including financial resources. Firms are also not taking steps to guard against such threats, or to develop management plans to stop the threats occurring.

It added that some firms had already made mistakes when assessing future demands on them.

The letter tells firms they should be able to provide the FSA with a decent assessment of their resources if asked. If a firm cannot do this, the FSA will ask it to take immediate steps to strengthen its financial position and may even restrict all or part of its regulated activities until the problem is fixed. In severe cases, it will also consider enforcement action.

Biba said its members should ensure that their financial resources assessment is up-to-date and be prepared to make the information available to the regulator.