Now's the time to carry out a gap analysis, says Branko Bjelobaba

Updated figures just published by the FSA show that 9,220 firms have applied, so far, for authori-sation. Of these, 5,049 were from the primary market and 4,189 were from the secondary market. In addition, 4,227 applications for variation have been received.'Minded to authorise' (MTA) letters have now been sent to 7,927 firms.But if you are one of the many firms that have had your MTA letter don't sit back and think it is all over. Now is the time to ensure that your business will be compliant with the FSA handbook as from 14 January 2005. Scope of permission notices (SPNs) will follow from mid-November for firms that only conduct general insurance business. What do you need to think about now? Have you carried out a gap analysis, which will show you what needs to be done? Do you know how to? If you think of the exercise just like a car's MOT test it will be a lot easier to manage. Let's assume two fundamental parts - the business and the customer. I will cover a few points here, but this is by no means an exhaustive list. For a car to pass its MOT all checks have to pass - not one bit can fail. If one bit fails then all of it could fail.

The businessThe FSA requires that all businesses are compliant with its high-level standards, which include:

  • Principles for business:11 key principles that all businesses must adhere to. If you don't know what they are then find out.
  • Senior Management Arrangements, Systems and Controls: your business has to be well run and organised. Have you assessed the risks your business faces and do you know what your business continuity plan is?
  • Threshold conditions: these are the minimum standards for staying authorised. Condition 4 (adequate resources) and Condition 5 (suitability) are important - make sure you have enough financial and human resources.
  • Statements of Principle and Code of Practice for Approved Persons and the Fit and Proper
  • Test for Approved Persons: there are seven principles - print them off and pin them above your desk.

    There are other things to look at:

  • Bank accounts: have you decided which one you will need? Will you hold client money? You will need to change your bank account into a formal statutory or non-statutory trust account. Biba will shortly be providing letters to banks to assist with this. If some insurers have given risk transfer you will still need one of these accounts for other client funds. Do you know how to reconcile them?
  • Capital requirements: if you are handling client money you need net assets of at least £10,000 or 5% of insurance income, whichever is greater. If you propose to keep retail client money in a non-statutory trust then you need at least £50,000 (or 5% if greater).
  • Do you have this? Do you take commissions on a received basis? Now is the time to find out.Professional indemnity insurance: make sure yours is adequate to meet the FSA requirements - a minimum of ¤1m any one claim and ¤1.5m in the aggregate.
  • Training and competence: you cannot ignore staff training issues. All staff that sell or advise, or get involved with the business will have to be assessed as competent by 14 January 2005 otherwise they cannot do what they are currently doing. Make sure you make full use of free training events that are on offer. Don't leave this crucial bit until the very end.
  • Client issues

  • Insurance Conduct of Business: this is a chunky rulebook that covers the selling of general insurance to retail and commercial customers. Do you know when a commercial customer could actually become a retail customer? From 14 January 2005 all retail clients must have their renewal documents at least 21 days before the renewal date, so make sure you get the invitations from the insurers in good time.
  • Statement of demands and needs: this is not just the fact find. This is evidencing that the policy you are proposing for your client does indeed meet their demands and needs and it is your opportunity to tell them why.
  • Complaints process - this will differ from the one you will have with GISC - make sure you update it.
  • Compensation: this is another new entry for your new terms of business.
  • There is a lot to do. Companies that have been complying with GISC rules will find this exercise easier, but there are key differences. Now is the time to sit down and carry out the gap analysis. Think of it like eating an elephant - bite size chunks, but don't ever put it down. And don't leave it until the Christmas break.' Branko Bjelobaba is a regulation and compliance consultant