How much will it cost you to become FSA compliant? How easy is it? And is compliance a threat or an opportunity? We ask four brokers for their opinions
Glyn Rowett is the principal of the Rowett Insurance Broking Group, St Austell, whose premium income of £4.7m consists of 43% personal business and 57% commercial.
Have you put in your application for FSA authorisation? We applied in early March. We are already authorised for financial services, so we were required to vary our permission rather than submit a full application.
How much do you think it will cost you to become compliant? We have employed a staff member who is primarily responsible for compliance and training, so compliance has had considerable bearing on staffing costs.
We have put extra investment into training initiatives in order to tackle competence issues. There are various costs incurred by necessary updates to stationery, terms of business and so on.
Are you more or less positive about FSA regulation than you were this time last year? We are feeling far more positive about it. The application process has proved less onerous than we imagined and the general attitude from insurers has been very supportive, with newsletters and bulletins arriving almost daily. By grasping the initiative early on with a compliance 'health check' we have been able to take on board the suggestions and areas highlighted to address any concerns in good time.
How far have you progressed in becoming compliant? We have made good progress in tackling the training and competence issues. Working in conjunction with our Investors in People contacts we have put many processes in place, and we have defined the recording procedures necessary to meet our needs.
In terms of sales processes and other areas, we feel that, following our membership of GISC, including a GISC visit, we now need to look more closely at the finer details of the FSA rules.
Was this easy? As we already follow GISC and FSA regulation we feel that it is a matter of bringing procedures up to date to meet the new FSA rules, rather than feeling as if we are starting from scratch. This familiarity with regulatory matters has stood us in good stead for meeting the requirements as well as grasping what is expected of us.
What else do you need to do? A detailed analysis of our accounting procedures will be undertaken to ensure that they are fully compliant well ahead of the relevant deadline. The extended reporting requirements will be looked at closely to ensure that we are fully prepared in terms of providing any necessary information and documentation to the FSA.
Will this cause you a lot of work? The initial workload of ensuring that all compliance procedures are in place is clearly a fairly onerous task. The size and detail of the handbook does not lend itself to quick analysis and therefore certain tasks can prove quite time-consuming. Of course, once the hard work of putting everything in place has been done, the steadier job of maintaining compliance should prove manageable.
Do you see regulation as a threat or an opportunity? The obvious real threat is to the broking fraternity as a whole - there will inevitably be those who simply cannot manage to become compliant for various reasons, and therefore will have to cease trading. On the whole, regulation must be seized as an opportunity. We have used that opportunity to really take stock and tighten up procedures. As a result, the business is, on the whole, running smoother with clearer definitions of job roles and responsibilities.
Training has been brought to the fore with dramatic results in terms of staff co-operation and morale.
Are you happy with the way the FSA is handling the authorisation process?
On the whole, the FSA has been fairly hit and miss. While sometimes it seems hard to get a clear answer from any one advisor, at other times they have proved themselves most helpful and efficient. Our experience of the online application process was good. The process was streamlined and efficient and suited to our needs.
Carl Woodroffe is director of MCIS, Birmingham, whose premium income of £10m consists of 95% commercial and 5% personal business.
Have you put in your application for FSA authorisation? We will submit it this month, May 2004.
How much do you think it will cost you to become compliant? £5000. This figure was less than actually expected.
Are you more or less positive about FSA regulation than you were this time last year? More. With more information available through desktop research, attending seminars and FSA presentations the implications and requirements have become clearer.
How far have you progressed in becoming compliant? We are largely compliant already. We have always functioned on statutory trust-type basis.
What else do you need to do? Ensure that compliance is proved by documentation and monitoring systems.
Will this cause you a lot of work? Not particularly.
Do you see regulation as a threat or an opportunity? An opportunity.
The number of brokers will probably reduce due to "fall out" and mergers etc. More effective management systems used properly should lead to better handling of business. Each of these aspects is expected to generate new business opportunities.
Are you happy with the way the FSA is handling the authorisation process? Yes, they have been helpful.
Duncan Macbeth is a director of Macbeth Scott & Co, Kendal, whose premium income is £3.2m, consisting of 60% commercial and 40% personal business.
Have you put in your application for FSA authorisation? Our application went in on 31 March, submitted online.
How much do you think it will cost you to become compliant? An estimate of costs is around £15,000 for the year, and this will probably rise after January 2005. This represents investment in various programs to assist auditing compliance.
Further costs have been expended on membership of a local training club, organised by AXA. Costs are quite high for this sort of thing, but well worth it.
Are you more or less positive about FSA regulation than you were this time last year? Now that all the discussions are over, and clear rules are now formalised, one has just got to get on with it.
How easy has it been to become compliant? It has not been easy, and has involved numerous meetings to iron out details with the FSA. The costs mentioned before are direct costs. The hidden costs in time are really incalculable, but could easily top another £15,000 per year.
What else do you need to do? There are the additional matters concerning trust accounts, i.e. statutory or non-statutory. Even the banks don't know what they are doing here. We already have an internal accountant, so we have always been up to speed with drawing down of commission, quarterly accounts, etc. We have a separate financial services company - which is FSA compliant - and we share the accountancy function with them.
Do you see regulation as a threat or an opportunity? Neither - it is a plain fact. Some may see it as an opportunity to acquire a failing business; the smaller broker may see it as a hindrance for the future.
Other comments: There are still a lot of unanswered questions, for example policyholders compensation funds. This side of regulation is not over yet.
Richard Mikula is managing director of Topaz Insurance Services, London, whose premium income is £1.2m - 83% personal business and 17% commercial business.
Have you put in your application for FSA authorisation? Yes.
How much do you think it will cost you to become compliant? £2500 and rising.
Are you more or less positive about FSA regulation than you were this time last year? More - not that I see they will do much. It's just another stealth tax on business.
How far have you progressed in becoming compliant? Most issues are in place or will be in place. But the rule book is so unclear. We need clear and concise rules which everybody can understand, that way smaller brokers can spend more time applying the rules than trying to decipher them.
Was this easy? No, it was a bloody mess; mostly the fault of the FSA for not getting the rulebook in place, or sorting out their electronic forms.
Do you see regulation as a threat or an opportunity? Assuming we get authorised there may be opportunities, in the sense that smaller brokers may want to merge or pool resources, just as in training and development.
However, the bigger threat comes from insurers who will try to use the FSA against brokers.
Are you happy with the way the FSA is handling the authorisation process?
They have been very helpful, but they lack any understanding of how a small high street or country broker operates.
Other comments: The questions on the paper form differed from those on the electronic one. Helpline staff were unable to view the electronic form, so could only provide limited advice. They did not have direct access to rules or requirements. Our own company registration could not be entered correctly; 'no' answers needed to be changed to 'yes', and follow up emails sent to correct this.