Insurance Times puts your questions to the FSA

The Financial Services Authority (FSA) will not use well-established regulatory regimes such as the Personal Investment Authority (PIA) as a model for broker regulation, its new high street firms division head has said.

Sarah Wilson, formerly the FSA's mortgages and financial promotions head, was named as director of the new division last week.

The division will develop and oversee the regulation of the mortgage and general insurance sectors.

Earlier this week, the FSA released its Mortgage and General Insurance Regulation: A Guide for Firms.

Brokers were sceptical of the document, which they said insulted them, lumping them in with mortgage brokers, and failed to differentiate between personal and commercial brokers.

However, in her first interview in her new position, Wilson told Insurance Times that her division would develop a regime "proportionate" to the risks in the general insurance market.

"We're therefore not planning to take past or existing regimes as a model," she said.

Q. Brokers are very keen for a level playing field with travel agents, warranty sellers and others. In your opinion, how far could regulation be extended by the Treasury and how likely is it that it will be extended?

A. The scope of the FSA's regulatory responsibility is, quite rightly, a matter for Parliament. You therefore need to talk to the Treasury about questions of this kind. (The Treasury is considering the issue and consulting stakeholders).

Q. What changes will be needed to meet the threshold conditions set out in the Financial Services and Markets Act?

A. At present, the Treasury is considering the legislative changes necessary to implement the Insurance Mediation Directive and to bring in any other extensions to the FSA's regulatory scope that it might wish to make. It is itself waiting for the directive to be finalised, so we will not know what the legislative impact is.

Q. The timetable appears tight. Is it possible to consult on draft legislation released in July and formulate a response in time for legislation to be before Parliament by October?

A. When we and the Treasury published the timetable on 24 January, we said that it was the current planning assumption. It may be that, as work progresses, changes have to be made. It is for the Treasury to consider whether its timetable remains realistic in the light of its on-going legislative work and the significance of the issues that it raises.

Q. Brokers fear too high a cost of compliance will price them out of the market and force businesses to insure in Europe instead. What is the likely cost of compliance for a professional broker/intermediary that is already complying with all the General Insurance Standards Council (GISC) rules?

A. We do not yet have estimates of the compliance cost, but we are committed to introducing regulation that is proportionate, taking account of the risks and benefits of general insurance products sold. We also have an obligation to conduct cost-benefit analysis, to announce our policy decisions, and to consult so interested parties can comment.

Q. Is the model of regulation used likely to be more like the PIA or the GISC?

A. We will develop a regulatory regime that is proportionate to the risks in the general insurance market today and expected in the future. We are, therefore, not planning to take past or existing regimes as a model as such. However, we look forward to learning about the market and existing regulatory practice from a range of interested parties (including the GISC). We have also said we will give due credit to members in good standing of GISC and other comparable bodies.

Q. There appears to be little differentiation made between personal and commercial lines brokers and brokers are concerned that regulation might be fashioned with personal brokers in mind, then adapted for commercial brokers. How will the needs of the two be balanced?

A. We will need to consider the full range of products and customers inthe general insurance market when developing a regulatory regime. The FSA already operates a range of regimes for different markets and consumers, and we will do the same here if found to be justified by the risks.

Q. How is it possible to put brokers, intermediaries and mortgages in the same basket? Are their businesses not too dissimilar?

A. The FSA has decided to create a new division with responsibility for developing mortgage and general insurance regulation. We are well aware that the products differ and many of the players do too. But both are new areas of retail regulation where we need to develop proportionate regulation.

We need to be consistent, so that differences are understood and relate to differing risks. Also, one of the drivers for the government's decision to ask us to regulate both sectors was a desire to streamline regulation for smaller advisory firms. The creation of a single division will make it easier for us to develop consistent regimes and to streamline regulation.

Q. What training and/or competence will the FSA look for?

A. At this stage, we do not know what training and competence requirements we might introduce, and this is something on which we would need to consult before any decisions are made.