Meeting regulatory requirements is a challenge for many smaller brokers, but compliance software can ease the burden. Simon Hughes explains the key issues
Over the past few years the industry has witnessed a raft of organisations offering compliance support – software houses, networks, specialist consultancies and so on.
Software houses are well placed to support brokers as much of the information required by the FSA relating to business and clients is held within their day-to-day trading systems.
Though no software house can claim to offer a compliant system, they are able to make enhancements to help brokers meet regulatory requirements. The level of support and cost to the broker varies.
The number of companies launching compliance software continues to increase. I would question those who have announced very recent launches, now that we are more than two years into trading in a regulated environment.
At Open GI we delivered a regulation module well in advance of January 2005. It is now in use by over 50% of our customer base and covers a number of areas relating to the sales process and reporting.
The main advantage of compliance software developed by broker software houses is that it's integrated. The broker can do everything from one system.
However, it's not that easy to establish exactly what's on offer. Acturis and CDL, to an extent, appear to have upgraded their broker platforms to cater for FSA requirements. Insurecom and SSP have released regulation modules, with Insurecom being the latest to launch in 2006.
There are also stand alone organisations such as Complinet and other technology providers entering the market specifically around contract certainty, for example Wildnet.
Additional professional services normally tend to be available via broker networks. The Broker Network and Cobra, for example, have a compliance offering but there may well be hidden costs to the broker. Networks such as Countrywide (Open GI) are looking to expand their offering to further cater for brokers' requirements.
As the FSA releases further consultation papers and makes changes to the rules, software houses have needed to respond accordingly. It is important to listen to what brokers and the industry as a whole want.
Much of the information required for the retail mediation activities return, for example, can be extracted from a broker's daily trading system. Percentage and type of business is easily extracted from the supplementary product sales data and there is a complaints event module to assist with reporting.
In relation to demands and needs we have included the option for brokers to define wordings within the system so that inaccuracies can be avoided.
Contract certainty and client money are the latest hot topics. While contract certainty is not subject to statutory regulation, following the FSA's recent announcement, it is important for brokers to be able to prove they are meeting industry defined timescales and targets.
Furthermore, providing proof of contract certainty will form part of a firm's Treating Customers Fairly strategy. Client money on the other hand is still under review by the FSA.
One broker keen to make sure it is providing contract certainty is leisure insurance specialist K Drewe. ICT associate director Marvyn Amphlett explains: "The ability to record the length of time from when a client goes on cover to when policy documents are issued is important for brokers, not just because it provides proof of meeting industry defined targets but also because it helps to streamline internal processes from a management information point of view – ultimately improving service for customers.
"An internal project team was set up in early 2006 with a view to achieving contract certainty – it has also streamlined procedures."
The ability to differentiate between client money and insurer risk transfer money is a also a key requirement.
Philip Alexander, a director of south west London personal lines broker Shene (Insurance), says: "For the average busy broker it is important systems are in place to deal with issues such as handling client money.
"It can be very time consuming and requires an eye for detail to be confident in your results. If your IT system can provide the relevant reports you will find great benefits.
"Time is freed to concentrate on production of business and also you can be confident that you are recording and monitoring essential information required by the FSA."
Alexander adds: "For brokers who are not confident in their system's abilities or have not yet implemented compliance software, I would recommend they talk to their software house to see what it can offer. It's an advantage to have efficient, streamlined processes in place via your IT system."
Despite there being a number of areas still under consideration by the FSA, brokers appear to be getting to grips with trading in a regulated environment. We deal with over 2,000 firms and currently receive fewer than 15 regulation related calls into our support centre per month – a third less than we were receiving a year ago.
A certain amount of fear will always exist whether or not a broker is due for an FSA Arrow visit, but the overall picture is encouraging. It proves that the tools are available to support brokers and that they understand what they need to do.
But it doesn't mean that brokers should be complacent. They should keep a close eye on changes to FSA requirements and should work closely with their software houses.
Many have websites which are updated with system related changes and many hold FSA related events.
Overall, the feedback from brokers suggests that they are continuing to look to their software houses for support and guidance, particularly as new changes come into force.
With IT systems forming an integral part of their day-to-day operations, it is important that software houses meet their demands by making relevant enhancements and extending the range of professional services on offer.
Regulation is important for the industry as a whole and software houses should be trying to do as much as they can to help brokers provide the relevant information from within the system. IT
Simon Hughes is sales and marketing director of software house Open GI