The General Insurance Standards Council (GISC) will dissolve in mid-2004 once it has handed over its regulatory function to the Financial Services Authority (FSA), chief executive Chris Woodburn revealed on Tuesday.
The revelation followed the GISC's announcement that it had met with the FSA managing director John Tiner's staff on 8 January, to discuss its future FSA relations.
It is understood the UK insurance industry has spent up to £800m on GISC and compliance with it.
Treasury economic secretary Ruth Kelly announced the regulatory changeover on 12 December.
The EU Directive on insurance mediation prompted the change.
Woodburn said the GISC learned responsibility for regulation was to be taken from it only on
3 December, although he had earlier discussions with the Treasury on the directive.
"What surprised us was the speed of political agreement on the directive," he said.
"When we saw the Minister [Ruth Kelly] on 3 December, we'd not been given forewarning that the decision had been made."
Woodburn said he learned soon after the announcement that the GISC would be dissolved.
He said: "In the middle of 2004, the GISC as a company will cease to exist.
"The FSA isn't going to take over the company and give up rights to the staff, but the expectation is that it'll want to recruit and this is one pool it'll recruit from."
Woodburn said all staff had been warned that their job tenure rested on GISC going ahead.
"We've always been careful to explain to potential employees of the risk of the project.
"People have their individual worries, of course, but they aren't surprised, this hasn't come as a bolt from the blue."
Woodburn said he had not given his own employment following the GISC dissolution any thought.
When asked whether the Treasury was aware of the industry's anger at the money spent on setting up GISC, only to have it made defunct, he said: "The minister certainly does know what we've achieved and how much it has cost, because we told her, but this was a political decision."
Woodburn said the FSA and the Treasury were yet to make two vital decisions on the future of regulation.
"We don't know what legislative framework they will use," he said.
"It could be the Financial Services Markets Act, or the European Communities Act, which the government uses to enshrine directives into UK law, or whole new legislation.
"They haven't made a decision on how they will approach regulation."
Woodburn said the GISC hoped to advise the FSA on the logistics of regulation.
"They've only got two and a half years to create an all-singing, all-dancing regulator, and that isn't a lot of time."
Woodburn denied there had been an exodus of members since Kelly's announcement.
He said five had withdrawn their membership and another five had withdrawn their application for membership.
"The GISC continues to receive a steady stream of applications, which more than outweighs the small number of firms seeking to resign," he said.
