Is management really in control of your company, asks Lord Hunt
When FSA chief executive John Tiner came to speak to the all-party insurance and financial services group in parliament last week, he emphasised how good the new general insurance and mortgage regulation regime was going to be for consumers. The emphasis was on retaining an innovative market place, improving consumers' ability to compare products on offer and providing suitable advice where needed.
Some readers will no doubt recognise these themes because they apply to their market. Improving the deal for consumers should be good for business, but some might not recognise this as their business reality or an opportunity for them. B2B or wholesale markets operate on the basis of greater equality of knowledge between buyer and seller. The Treasury cast its net very wide in deciding what should be regulated to implement the Insurance Mediation Directive, however, and the FSA did not shirk from drafting comprehensive new handbook parts (ICOB and MCOB).
As the clock now ticks down, those for whom regulation has not been primarily designed will find that they too need to ensure that all aspects of their business affected by ICOB and MCOB are sorted out. The first 'arrow' visits are already scheduled. The FSA staff conducting those visits are not ogres, but they will be breaking new ground - even if they have done such visits before to investment firms.
They can be expected to operate at a generally high level, looking to see if management really is in control and if the business is operated in a well-ordered way. So expect your governance to be closely studied, rather than a large number of client files "to be pulled".
What is much less certain is what they might do should they discover large amounts of premiums and claims money swilling around with no reconciliation in early sight. Backlogs of policy documentation are unlikely to find favour either. If brokers' binders are prevalent, are the delegations clearly set out to ensure that there is no possibility that they could be seen to be dealing in, or effecting, contracts of insurance?
If you do recognise yourself in any of this, there is a short while to put matters right. The fact that this may have been normal market practice will not cut much ice with an organisation which is very keen on keeping client money under control.
It remains to be seen what the FSA makes of current market practice. No doubt they will seek improvement, but rumours that the FSA will seek an early scalp in the general insurance area to establish their credentials are just that; rumours. Nonetheless, it must be expected to be ever mindful of its statutory objectives and the extent to which practices give rise to consumer detriment.
Rule breaches leading to serious consumer detriment will undoubtedly be punished; in other cases the "risk mitigation programme" will give firms time to remedy what the FSA regards as weaknesses. IT
' Lord Hunt is chairman of Beachcroft Wansbroughs Consulting.