Inside the London market the brokers are not going to be disconcerted by a technical requirement that they do their business in a professional manner or by the authorisation procedures. At least, few can admit to worrying about them. What is required is little more than was asked of them by the Lloyd's brokers department and later the GISC.
The biggest problem is not what the FSA is proposing to monitor; it is what the FSA is refusing to monitor - reinsurance, travel and non-EU marine, aviation and major risks. This covers a large part of the business of London market brokers.
Before they rejoice at getting rid of regulation, the smaller London market brokers need to look at the implications. The Lloyd's abdication of responsibility for regulating brokers led to a lot of consolidation as insurers reduced their lists of accepted brokers.
Will US insurers be prepared to place reinsurance through a small broker in an unregulated London market, or will they go to the big boys? Will they abandon the London market altogether? Does this mean more consolidation? Or will £25m brokerage be the minimum size to operate in the London market?
The fascinating alternative of a resuscitated Lloyd's brokers department could solve the problem if Lloyd's and the London companies are prepared to use some imagination and vision.
Until the later confrontational days, the Lloyd's brokers department was an effective community policeman, heading off a lot of trouble with little fuss or expense. On the other hand, will the long list of expensive failures in the last two years of broker regulation by Lloyd's frighten off any new regulator?
Turning to the detail of PS174, the amendment most relevant to the London market is the revision to the IBA rules. The frightening prospect of having to deal with four conflicting sets of rules and four records has receded. Brokers are now permitted to operate an old style IBA, a non-statutory trust for private as well as commercial clients. Brokers are also specifically allowed to use the same IBA for reinsurance, and probably for unregulated large non-EU business. IT firms hoping to cash in on the confusion are laying off consultants at this moment.
There are a couple of problems. It appears that the old ideas of leaving surplus funds in the IBA to earn a higher rate of interest may have to be abandoned, as excess funds can only be left there in specific circumstances. I suspect that we will manage to tailor one or more of the specific circumstances to fit the broker's requirements.
The other difficulty is that brokerage can only be withdrawn from the IBA as received. This will cause problems for many brokers who may find themselves short of cash. I suspect it will also lead to some careful interpretation of rules on instalment business. Part of the solution is to amend the policy on recognition of brokerage as income, and get the taxman to pay his share.