Brokers must prepare now for the FSA regulatory regime, says Gary Dixon.
Since the start of the year the FSA has been issuing consultation documents and guidance notes on the likely shape of the new regulatory regime like confetti.
While regulation may still seem a long way off, if the experience of the IFA community which had to fall in line with FSA control a couple of years ago is anything to go by, the deadlines will come around fast.
The current consultation papers covers huge amounts of ground - much of it still unclear. But uncertainty is no excuse for inaction and while we wait for detailed guidance on exactly which rules we will have to comply with, there are some actions intermediaries should take now to ease their transition into a fully regulated environment.
The following pointers should stand most insurance businesses in good stead and ensure they are not caught napping when the regulatory balloon goes up.
At the risk of sounding too simplistic for a sophisticated market, I would advise all firms to spend a modest amount of time actually looking at their business. All too often we fail to take stock of where we are and what we have achieved. "Does your firm have a written business plan" is one of the first questions asked by your bank manager but I would start first by asking whether you have an adequate written record of who does what within the business and what the reporting lines are.
A stated aim of the consultation paper, and something the IFA community has had to contend with, is the FSA's strong emphasis on the apportionment and recording of responsibilities within a firm. As part of any (no matter how streamlined) application for regulatory approval, the applicant will need to clearly demonstrate where responsibility lies for the functions that make the firm tick. If this is supported by written job descriptions and an organisation chart, all the better. That way the demonstration of management controls in this area will be all the more easier.
Secondly, ask yourself how profitable is your business? This in isolation may not be a key point but the ability to determine your financial position and demonstrate the strength of your business's underlying assets will be. Insurance intermediaries work off different solvency tests at present. The proposed changes to capital may, when finalised, require additional capital within your business to meet any new minimums they may impose. This will require some planning and consideration of the different options. Think about incorporation, perhaps?
How well do you know your client base? Having tools in place that allow you to see where business has come from should allow you to decide where you want to go. While we all wait for the resolution of the outstanding proposals regarding the regulation of different classes of business (private or commercial), it makes sense to look now to see just exactly where the firm's incomes are generated. It may be the case that some classes of businesses are not worth bothering with if they attach too onerous a level of compliance. Knowing the facts is the only way to prepare.
Business leaders often trumpet their staff as their companies' greatest asset, but how well do we record what they do, how well they do it and what they need to do to improve? Those in the GISC (who, admittedly, are in the minority of brokers) will already have taken on a Competence and Training regime that is designed to ensure, and demonstrate, that appropriate staff are skilled and qualified for the job they are asked to do. Few non-GISC firms actually record this at present.
Such systems take time and effort to operate properly and they are often allowed to lapse under pressure of other work. The FSA's Training & Competence scheme is a fundamental control tool to allow them to ensure comparability between different firms and common standards. Whatever the size of business you control, this is one area where you can assess your staff now and the roles they play. Having a written record of the strengths and weaknesses of individual staff members now will allow training plans to be put in place sooner rather than later in order to improve standards overall.
Taking some steps now, however small, should help differentiate your firm from another that is less prepared. Remember, some brokers are already FSA regulated by virtue of their life and pensions activities. Others have voluntarily joined the GISC and in meeting their standards go part of the way towards what the FSA will impose. If you've done nothing to date and you wait too long before addressing these issues, you may find your competitors put their spare time to poaching your clients!
Gary Dixon is managing director of Compliance Solutions an independent consultancy which advises businesses on complying with FSA regulation.
