The insurance industry must start to abide by a universal code, or it could be costly, says Elliot Lane

' This week the CII has sent out to its 90,000 members a copy of the new code of ethics. It represents a clarion call to the industry to improve its reputation and sets out guidelines on professional behaviour when dealing with clients and consumers.

Its timing could not be more apt. Over the past few months (if not years) the industry has been scrutinised both domestically and globally with the run-up to FSA regulation and the fall-out of the Spitzer inquiry. As Lord Hunt says in a covering letter to the code: "The FSA sets a basic standard for the markets and those who work in them, but we can and should set a much higher standard. We must raise the bar."

On reading the code, the elements will probably seem self-explanatory to most working in this industry. Act openly and honestly when dealing with clients; remain objective when making decisions and do not apply prejudice or bias which may override any objectivity; be professional at all times, etc.

But looking back over why Independent Insurance collapsed, remembering the conduct of the Equitable Life directors and not forgetting Marsh's US back office shenanigans, all these aspects seem to have been ignored and must be reiterated.

The industry must start to regulate itself and abide by a universal code, otherwise even more cost burdens will appear from the FSA or Brussels. It is clear from the FSA's budget plan that it will be looking to balance its books this year, and even make a profit. The good news after the Treasury's audit was for small businesses. These firms will not feel the "full burden" of compliance costs, according to the FSA chairman, Callum McCarthy.

Sources said that the FSA feels the banking industry is now well-regulated and does not need its full "attention".

Its AFR projections for 2005/6 (the fee-structure that pays the FSA wages) for mortgage and general insurance activities

is £44.1m. The FSA has a projected deficit of £8.7m for 31 March 2005 which is a £7.4m "adverse variance" in the projected figure of its application fees total of £28.3m. The FSA says the money didn't come because 5,400 fewer firms applied for authorisation. It has said it will make up that deficit and build up reserves by 5% of operating costs by 31 March 2008.

The FSA must make up the difference. So the insurance industry may take the brunt of the charges. The FSA believes the market "still has a long way to go" and will take up more FSA time. So the extra money may have to come from the insurance industry coffers. How? It could be through fees if the FSA has to issue teams or staff in the regions to help with compliance issues or the secondary intermediary market might get stung.

After the Legal & General fiasco, the FSA's image is slightly bruised and it is unlikely another tribunal will happen for sometime.

The code of ethics should be taken seriously. Not just to make the industry a more pleasant and professional place to work, but it will save the industry money. IT