The FSA has begun to order brokers that are failing to comply with its client money rules to pay for expensive audits of their businesses, Insurance Times has learned.
The commissioning of 'skilled persons reports' - otherwise known as section 166 reviews - represents a dramatic intensification of the FSA's crackdown on firms that flout the client money rules.
The FSA makes section 166 orders when it has concerns over a firm's activities. The firm is required to appoint, at its own expense, an independent expert, approved by the FSA, to conduct a review and make recommendations. The reviews can cost tens of thousands of pounds.
One senior compliance source said: "It is quite an extreme response, although perhaps not unexpected as some do feel the intermediary market has been told about client money issues repeatedly and has not done anything about it."
It is understood that as many as three of these reviews have been ordered, although experts say a number of other firms have voluntarily obtained 'skilled persons' reviews after pressure from the FSA.
It is not clear which brokers had received the orders, although at least one is understood to have been in the London market.
These are thought to be the first section 166 orders made by the FSA since it took over the regulation of the intermediary market in January.
More orders are predicted as the FSA widens its review of client money handling to retail brokers.
Trevor Newbery, partner in the financial markets group of Grant Thornton, which carries out section166 reviews, said: "They won't necessarily be constrained to the London market - any broker could receive them."
On average the FSA makes around 30 section166 orders a year across the whole of the financial services market.
Deloitte partner Colin Rawlings said: "The reviews would be focused on the larger end of the market, as the FSA has to adopt benefit analysis - it has to justify the benefits and the costs"
In July the FSA wrote to Lloyd's and London market brokers complaining of widespread non-compliance with client money rules. As a result, brokers were given until the end of August to demonstrate they were taking steps to become compliant.
An FSA spokesman said the regulator would act "proportionately" when deciding whether to make section 166 orders.
