The FSA is now turning its attention to smaller brokers, who may not have the necessary resources to meet demands
Watch out smaller brokers, it’s your turn! The FSA’s warning over the handling of client money at smaller firms shows how its spotlight has moved down the food chain (see page 5). A year ago, the consolidators were privately complaining that they were receiving more than their fair share of regulatory attention, while their smaller rivals were left free to, well, not break the rules exactly, but perhaps bend them a little.
That’s all changed. For reasons best known to its inscrutable self, the FSA has moved on to the next set of brokers. And it’s not just looking at client money. There’s a whole raft of detailed requirements – risk committees and the like – that are difficult if not impossible for smaller brokers to meet. Regulation is becoming more intrusive, and financial crime (client money misuse and bribery) is high on the agenda.
‘Smaller’ could still mean a broker employing 200 staff, but these entrepreneurial businesses were not set up to withstand this degree of regulation, and may not have the resources or the skills required. And it’s only going to get worse. The FSA’s actions signal the likely approach of the Financial Conduct Authority when it takes over as regulator next year.
There will be a few brokers who throw their hands up in despair at the prospect of even more scrutiny. This could spark a few M&A deals, where principals that have been holding out on price decide that enough is enough. But many more will take it on the chin, set up the risk committees, employ the compliance officers and so on. As they do so, they will be looking more than ever for support from their insurer partners.
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