FSA's risk transfer U-turn is worrying

Delays in deciding on a major regulatory issue makes it more difficult for brokers to plan their future, says Michelle Hannen.

The FSA's decision to delay setting its final rules on risk transfer for another year has seen brokers' biggest fear about regulation realised - that the FSA would fail to understand the industry and establish a regime that is complex and makes transacting business harder rather than easier.

Despite a year of consultation and discussion, the rules the FSA has come up with for risk transfer are unworkable. One potential implication is that brokers will have to operate separate bank accounts for each of their agencies. Another is that insurers will be encouraged to cull agencies or deal direct with customers to limit their exposures.

While the decision to embark upon yet more consultation is better than the alternative of implementing something that is fundamentally flawed, it makes planning for regulation an altogether more difficult task. Brokers may find some of the work they have done has become redundant.

With one fairly major piece of the puzzle missing, the decision on whether to remain independent, join a network or sell - and the levels of cost involved in each option - becomes more difficult.

The question of how the FSA got it so wrong after a year of consultation warrants further investigation. This public U-turn will not please the Treasury, which is understood to be unhappy with the way in which the FSA has chosen to implement Europe's Insurance Mediation Directive.

There are fears that the FSA's decision to go super-equivalent will damage the competitiveness of the industry.

But while the delay will cause much confusion and angst, the FSA should be commended for admitting it got it wrong and taking a step back in order to fix its mistake.

As a regulator that does not like to formulate its policies in the public eye and does not respond well to public pressure, the outcome could have been far different.