The General Insurance Standards Council (GISC) faces the humiliating task of rewriting its rulebook just two weeks after a much trumpeted launch.
Broker bosses Mike Williams and Chris Arter claim the solvency rules are unworkable, and will have to be amended before the self-regulatory body opens its doors on July 3.
They also insist other changes will have to be made within a few months.
The GISC board will agree to the solvency amendment during its meeting today (Thursday).
The solvency rules force intermediaries that take commission on an earned basis – and many do at some point in the year – to have a 20% solvency margin. It takes no account of the assets of the company.
Chris Arter, secretary-general of the Association of Insurance Intermediaries and Brokers (AIIB), said: "They are sweeping people up in the net that they didn't mean to. Our findings are that quite a few companies will struggle to make the limit. There are amendments being proposed already."
British Insurance Brokers Association (Biba) chief executive Mike Williams confirmed Biba too had problems with the rules. "Brokers occasionally take commission on an earned basis and not a received basis when they know they are going to get paid, and that would impact heavily on them. We want some sort of waiver or dispensation or understanding from GISC if the assets of the business are enough to allow that to happen. Amendments have been tabled."
The AIIB and Biba had made these representations to GISC before and were surprised they had been ignored when the rulebook was published. GISC has confirmed its new membership committee has already had to be given the power to issue waivers.
A GISC spokeswoman said: "It was thought that the earned withdrawal basis was very much more common in the London market where the players are bigger. It wasn't appreciated that the practice was as widespread as it apparently seems to be."
The board will debate a motion to allow firms to calculate their solvency margin on a different basis. The motion has already been discussed and recommended by the GISC's new membership committee. The board's decision will be posted on the website.
The AIIB will also be pushing for each company to have a registered individual so GISC can take discipline against that person. Arter says small firms fear GISC will take action against them rather than the big firms, but having a named person will make targeting disciplinary action easier.
Williams claims GISC has watered down its education and training requirements too much and will have to strengthen them if it expects brokers to join after the IBRA is repealed in April next year.
"The training and competence requirements are much less specific and more generalised than before and we'd like to see that tightened up. I don't think that will be changed as rapidly as the financial requirements but I expect it to be changed by the spring," he said.