The FSA answers a question on whether referrals are regulated

Question: I am a member of a business network (BNI) which is a 'referral' organisation meeting once a week with the intention of referring clients to each other's business. A fellow member would therefore provide me with a referral consisting of a name, contact details and a brief description of what the referral was about. This would be a line stating something like: 'moving house and would like buildings and contents quotation' or 'just started up in business and requires insurance quotations'. Is this activity acceptable to the FSA?

Answer: The FSA has produced guidance on what insurance mediation activities will and will not be regulated when regulation begins in January 2005 (the Perimeter Guidance). This can be found at Appendix 5 of the authorisation manual of the FSA Handbook, which is available on our website. Also see our factsheet FSA regulation of insurance selling and administration - will I need to be authorised.

Introducing a customer to a broker or insurer is a 'regulated activity'. It falls within the activity of arranging, if it is carried on by way of business. There is detailed guidance on the 'business test', including a set of factors a firm should consider to determine whether it is carrying on regulated activities by way of business, at AUTH App 5.4 in the Perimeter Guidance. However, an organisation that provides information to potential customers about an insurance firm or product but does not do a regulated activity as its main business can qualify for an exclusion from regulation if it meets the following criteria:

  • It provides only information to the potential customer. If it passes information to the firm about the potential customers it cannot qualify for the exclusion.

  • Its main business does not consist of regulated activities

  • The provision of that information can reasonably be regarded as being incidental to that profession or business - so there must be relevance between the information provided and the main activity of the organisation

    • The referrer can still benefit from this exclusion if it receives commission for the introduction. If this exclusion is not available the firm may wish to consider whether it can become an introducer appointed representative of an authorised firm.

    An introducer appointed representative is an appointed representative that effects only introductions to an authorised person and/or distributes non-real-time financial promotions on its behalf.

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