Is your firm ready for 2004?

It is almost a year since Ruth Kelly, Financial Secretary to the Treasury announced to the Commons that the FSA would be responsible for the statutory regulation of insurance brokers, following adoption by the UK of the Insurance Mediation Directive.

The European Parliament subsequently adopted the Directive on 30 September, which effectively gives two years until statutory regulation arrives in the UK.

The FSA has provided some regulation information. At the recent Insurance Times Strategy 2002 conference, FSA managing director John Tiner said there would be a conduct-of business regime that would monitor areas such as product disclosure and capital requirements.

Ruth Kelly has said it was important that GISC remained in place and was effective until statutory regulation came into force, to ensure a smooth transition.

"This progression will be aided by the FSA giving due credit to firms in good standing with GISC and other comparable organisations," she said.

Brokers are beginning to realise that time is slipping by, and the time for action is now.

Although the GISC regime is seen as a benign one, about 1,500 monitoring visits have been made, and one firm has been fined £10,000 for a serious rule breach.

GISC rules are non-prescriptive, as opposed to the tick box approach to the Financial Services (Life & Pensions) Regulations. In that sense, it is likely that the FSA will follow a similar route. This allows firms some scope to take an approach to regulation that sits comfortably with the culture of their own businesses.

GISC, or other comparable voluntary regulation should not be seen as a soft option. The Treasury has recognised the value of continued voluntary regulation. Ignoring voluntary regulation may send a negative signal to the FSA for future reference.

Satisfy requirements

It is likely brokers will be able to apply for FSA authorisation in late 2003. Unlike GISC membership, where members were checked after entry, the FSA must be satisfied, at the time of application, that all appropriate elements of compliance are in place.

A firm will not be authorised unless it satisfies the relevant criteria. But the FSA has indicated that there will be a period of grace for those firms unable to meet its requirements.

To establish how far a firm has to go to be FSA-compliant, a health check can be carried out by an appropriately qualified consultant. This entails a site visit, following which, a report will be prepared.

The report will indicate where the firm appears to be compliant, where it needs to better demonstrate its procedures, and areas where work may be needed.

Mindful that brokers do not have huge compliance budgets, for around £1,000 or so, the report will clearly indicate how the firm can carry out as much of the work as it can in-house, unless it wishes to invest money, rather than time, in using outside resources.

Although the report measures steps taken towards compliance, the approach is from a risk management viewpoint.

Quality business

Any business which can demonstrate good record keeping, has a good training and competence scheme in place, can show an understanding of complaints procedures, is solvent, and takes other steps towards running in a compliant manner, will satisfy the FSA's regulatory requirements.

To help you achieve this, we have compiled typical check-lists which can determine how much more work needs to be done to meet the likely FSA requirements. The lists cover documentation, competence and training and other compliance issues.