The quiet Watchdog

The Central Bank, brokers and intermediaries have, as one broker put it, been involved in a courtship over the past nine months. Ever since the bank took over regulation of the broker and intermediary sector on 1 April last year, the two parties have been tied in a getting-to-know-you process.

By 30 June last year all existing brokers and intermediaries had to have filled out a detailed application form, in which they had to decide whether they were a restricted activity investment product intermediary (RAIPI), an authorised advisor or an authorised cash handler.

The following December, some were asked to submit further clarification forms.

Few have had an audit-style visit yet, but the Irish Brokers' Association (IBA) has been in weekly, and sometimes daily, contact with the bank.

Meanwhile, the Central Bank's career-regulators have been taking a crash course in insurance. The insurance industry is regulated by one of the bank's five supervisory departments, the retail investments and insurance supervision division.

Running the division is Dublin-born Con Horan, with Bernard Sheridan as his deputy. Cavan man Donnie Kennedy takes care of policy development and insurance relationships, while John Pyne runs the authorised advisors and ongoing supervision sector. Michael Fagan looks after the RAIPI section. The division has 32 staff altogether, with an average of seven years' regulatory experience.

Horan has worked for the bank for the past 20 years, Kennedy for 25 years. Both of them have experience regulating every sector of finance services, but neither has experience in insurance.

"We've been incredibly busy," Horan says. "We look after 2,500 firms in total, which is very big compared to any other financial services area regulated by the bank. Just getting to know the industry is a job."

Although Horan and Kennedy have never worked together on a project before, they are now working so closely together they are finishing each other's sentences.

"The life industry is similar to investment, but the general insurance sector is new and different to us, mainly because of the more extensive spread of distribution," says Kennedy.

"But the core concerns are the same; you want people to be advised properly, sold the most suitable products and ensure the company is under proper management," adds Horan.

Nervous people
They are well aware of the nervousness with which brokers and intermediaries greeted their arrival on the regulatory scene. At the time, one broker told Insurance Ireland that attempting to intervene in the regulatory changeover would be "like trying to stop a train".

"If you're trying to find logic in all this, you'll be looking for a long time," the broker said.

"Change is difficult," Horan admits. "We respect that there was a system of self-regulation and that statutory regulation makes people nervous, but the bank has been through this with a number of different industries over time.

"We're aware of the concerns it raises and that to be apprehensive is a natural reaction."

"That's why we get our consultation documents out as far as we can and take account of all the comments," adds Kennedy.

"Not that we always agree with them," tempers Horan.

The softly-softly approach seems to have been successful. Brokers and intermediaries say the new regulatory regime has increased their workload, but admit it has many good points.

IBA broker services and development manager Stuart Reid says the vast majority of brokers had been doing the right thing by their clients anyway, but few had kept the kind of records of their activities now required by the bank.

"We have definitely felt that it needed a very large mindset change, in that it was an awful lot of effort to get the new documentation requirements up and running," he says. "But once it is done, it will tick over nicely."

He says the IBA is working with the bank to establish the "fine balance" between enough regulations to protect customers, but not so much that it hampers service.

"We have had very positive, open and frank discussions with the bank," says Reid. "We have had great flexibility and understanding from them, once they realise the reality of what they are asking."

Brokers seem to back the official line. One broker agreed that the new regulatory environment had added "very significantly" to his workload, and that was likely to be seen in higher charges to the customer.

"Now that you have to fully document everything, you get through less stuff in an hour," he says. "There's a cost to that and it will be passed on to the client."

However, he admits the regulators are not the gunslingers the industry expected.

"They're not as Taliban as we thought they would be, they have taken more of a caring and sharing attitude," he says. "They are learning and we are learning so it's a bit of a courting ritual."

Detailed references
Another broker simply says "some of it's absolutely impractical", like the ban on cold calling, the detailed references required and the listing of all bank accounts, and "some of it is very good", like the fact that cowboy operators will be wiped from the industry.

The feeling of tolerance is mutual. Horan is quick to say that the industry was in good order before the bank arrived.

"I don't think there were any major shocks for us," he says. "The brokers have been quite vociferous and open in expressing their view, in a positive way; they don't give us an easy time but they are fair."

The bank's approach to audit visits, generally involving two or three staff spending a couple of days on site, when they start, will be similarly circumspect.

So the Central Bank guys have managed to make a fair impression on brokers and intermediaries. What will they do next? Horan says there are a number of ideas in the pipeline, including the possible restructuring of their department.

"Looking at the regime going forward, we may increase our staff and make structural changes but it's still under discussion," Horan says.

They are also preparing for the European Union directive on insurance mediation, which has already forced the UK government to transfer insurance regulation from the General Insurance Standards Council to the statutory Financial Services Authority.

The directive will come into force in mid-2004. "We're keeping an eye on the directive," Horan says. "We expect to work towards that in the intervening period so there isn't a big change when it comes in."

Meanwhile, the bank wants the public to know it is there to protect consumers' interests when buying insurance through a broker or intermediary.

"We are looking at the issue of consumer awareness," Horan says. "We have got a fair bit of coverage over the last couple of months in the business press but the consumer side is one area where we will be becoming more proactive. It'll be a big focus for us."

Meanwhile, their outside pursuits should go some way toward endearing them to the industry; Horan is a golf devotee, while Kennedy is a general sports aficionado. In fact, they will probably get along better than they think. Insurance Ireland asked the pair for a photograph to accompany this article. If any were available, Kennedy joked, they were "probably stuck on the wall of a broker's office, being used as a dartboard". Surely not.