Broker trade body the IIB is poised to mount a legal challenge over compulsory membership to the proposed new self-regulatory body, the General Insurance Standards Council.

IIB lawyers are seeking Queen's Counsel opinion on the GISC insistence that insurers, which are members of the Association of British Insurers, will withdraw agencies from brokers and intermediaries who refuse to join.

It is not yet resolved whether this position will breach the new Competition Act, which becomes effective in March next year, as well as European directives.

"We are acting on behalf of our members who have approached us about the GISC issue," said IIB director general Andrew Paddick.

"There are concerns that a trade association such as the ABI is asking its members to impose restrictive practices." He added that ten regional brokers have informed the IIB that they are now reviewing their business relationship with composite insurer Axa because it maintained it was keeping to the ABI line in last week's Insurance Times.

As a consequence, the IIB is drafting a letter on behalf of all brokers which they can send to their insurers individually.

The letter, which will be issued to all registered brokers in January, will ask the insurer to reaffirm whether it will cancel the broker's agency if it is not a member of the GISC.

There is still speculation that the current statutory regulatory authority for brokers, the Insurance Brokers Registration Council, could continue for another three years.

"GISC wants policyholders to have access to the new Financial Services Ombudsman scheme," said John Greenway MP, current Treasurer of the IBRC, speaking this week to the Chartered Insurance Institute.

"But the ombudsman is unlikely to be able to do this before the middle of 2002.

"It is inconceivable that Parliament could be asked to repeal the IBRC and abolish the Registration Council and it's complaints mechanism for clients of insurance brokers unless and until an alternative scheme has been put in place which provides equivalent redress to broker policyholders. All this suggests we will need the maintenance of the Council for some considerable time."