Identify your clients regulatory category

Getting ready to complete the new application form for FSA authorisation may at first glance seem easy based on the information that firms are asked to provide. But just like anything else in life, it is only easy when you know how.

For many months now firms preparing for regulation have been reviewing their existing client base to allocate them to either a retail or commercial definition and also assessing the impact regulation will have on their existing methods of distribution. While the allocation of your clients may seem simple, many firms have found the process a little more complex as some of their commercial clients become potential introducers or even appointed representatives in the process.

With the FSA estimating that currently many more firms distribute insurance than will seek full authorisation, insurance brokers must take greater care to identify just what their introducers, and in many cases their clients, are planning to do about this impact on the business.

Questions must be posed not only to protect the income they earn from dealing with such business, but also to prevent the broker from assisting such clients undertaking regulated activities without the necessary authorisation, which will represent an illegal act from January 2005.

There can only be four categories into which all the current agents can be slotted, - an introducer, an exempt firm, an appointed representative (AR) or a fully authorised FSA firm. While identifying the exempt firm and the fully authorised firm is often easiest, the introducer versus the potential appointed representative can only be done by reviewing relationships and the business undertaken on a case by case basis against criteria which will often vary on a firm by firm basis.

Since many brokers are understandably nervous over offering appointed representative status, it is therefore vital that you assist the FSA in at least raising awareness that any firm which undertakes regulated activities after 2005 must hold the necessary permissions to do so even if that may mean that they seek authorisation for such activities as a secondary provider.

Equally, if your client does not want to seek such permissions then many brokers will be faced with the choice of either restructuring their current relationships, offering appointed representative status, or face the prospect of no longer acting for such clients in future.

But just how big an issue might this be for many firms? Any commercial client who asks a broker to obtain for them an insurance cover which is used to provide protection for their own customers (who could be another business or an individual) as part of, and in many cases an expected and normal part of, their service to their customer may fall within this category.

Just a few examples include:

While I'm sure that you can add just a few of your own examples quite easily, the solutions are harder to find. Even the more simple scenario of firms giving out leaflets need to be handled with some care when reviewing how they are in turn remunerated.

Because many firms reward introducers with a share of the commission based upon completed sales to the contacts introduced, this may bring them into the scope of a firm assisting in arranging the purchase of the insurance contract, which is in turn a regulated activity.

A firm will have to review, or put in place in some cases, agreements that they have with introducers to ensure that the activities they undertake do not fall into the definition of a regulated activity. While equally, those firms which do follow the appointed representative route will have to have the scope of their activities equally defined within their AR agreement.

The sooner that these issues are addressed and the plan of action made, the better chance that firm has of achieving its objective of FSA authorisation by 2005. Simply completing the forms may in itself prove an easy exercise but only after you have addressed some of these issues.