The Treasury fought to keep the General Insurance Standards Council (GISC) as the UK regulator for brokers but its hand was forced by other EU member states, according to the Association of British Insurers.
Last week, the Treasury announced the FSA would be taking over broker regulation between in 2004. But this transition will start next month.
The head of general insurance at the ABI, John Parker, told Insurance Times that while the Directive of the European Parliament on insurance mediation had been in the pipeline for four years, the Treasury "wanted it to be structured so the General Insurance Standards Council (GISC) could have a continuing role".
He said: "The Treasury sounded out EU member states about the continuation of the GISC, but the rest of Europe did not buy the idea."
The ABI has been in consultation with the Treasury over insurance industry regulation.
Parker said the GISC would continue to play an important role in the transition from self-regulation to statutory regulation in 2004.
He warned brokers who were not GISC members to think seriously about joining, or face going out of business when the time comes for FSA vetting.
"It is very important that firms both large and small, if they are GISC members, carry on with membership ."
"If they are not members, think very seriously about joining, because the FSA said that there would be some credit for GISC membership when it takes over," said Parker.
"If that entails the expense of GISC membership and getting to grips with training and competency, so be it.
"Brokers can't just say we will leave things for two years. That would be exhibiting a death wish, frankly."
Parker said FSA regulation would bring several benefits, including certainty in the market, after a period of fluctuation between the various broker regulatory bodies.
The ABI, along with broker bodies, will be working on an agreement with the FSA on the final wording of the directive.