Brokers are hopeful that they have persuaded the FSA to back down over who takes the risk for client monies at a meeting held on 29 July.
As reported exclusively in Insurance Times (19 June) a group of high-profile retail brokers have had several meetings with the FSA in order to convince the regulator that compulsory risk transfer would simply maintain the status quo under existing agency agreements. In CP174, the FSA proposed client money should be guaranteed either by formally transferring the risk to insurers or by it being held by brokers in segregated accounts under a trust. It will release its near final rules based on its proposals in CP174 in September.
One of the brokers involved, Broker Network chief executive Grant Ellis described the 29 July meeting as "constructive". He said broker support had continued to grow, with an additional 225 brokers emailing their support to firstname.lastname@example.org over the last two weeks, bringing the total number of brokers publicly backing the initiative to 272. "We've shown them there is a groundswell of support from the broker market and we're very much in their hands now." But despite the support, Ellis declined to declare victory. "I wouldn't like to predict which way they will jump," he said. "I think we've made a good case, but a little late in the day, perhaps."
Ellis said the brokers presented the FSA with a legal opinion from Berwin Leighton Paisner which states that, under Common Law, the broker is the agent of the client, but that a formal contract of agency modified that position so that, under certain circumstances, such as the collection of premiums, the broker became the insurer's agent.
If the push is not successful, it is believed that a number of insurers may offer risk transfer as a way of rewarding selected brokers.
FSA director David Kenmir said: "We want to improve communication between the PI market, trade bodies and the FSA. This will help us all to resolve the problems IFAs are experiencing. We have invited the PI industry, and trade bodies, to participate in a working group which will tackle the issues in the OFT's recent report. The group will consider how the PI broking business can be made more transparent and will help insurers understand the issues they should be looking into when assessing IFAs."