The FSA has outlined how it will penalise the industry if it fails to achieve contract certainty by the end of the year.
Regulatory options included: restrictions on commission drawdowns for brokers; additional capital charges for brokers; operational and other risk charges under the FSA's capital adequacy regime for insurers; and amendments to the conduct of business rules to refer to contract certainty.
In a speech at Lloyd's, this week, David Strachan, the FSA's insurance sector leader, said the regulator would prefer a market solution to contract certainty, but added: "If the market does not meet our challenge, we will introduce new requirements."
He said it would not be ideal for the regulator to introduce new rules, but contingency plans had been put in place in the "remote possibility" the market fails.
"Our view is that regulatory options should reinforce market codes rather than replace the work done by the market and, in line with the market approach, would be designed to target all parties in the chain," he said.
A negative attitude towards achieving contract certainty, Strachan claimed, was the biggest threat to its completion. "Without the determination to succeed it is very difficult to imagine [contract certainty] happening.
There was also a warning to underwriters which failed to track their own progess towards the Lloyd's target of 30% compliance by the end of 2005.
Strachan said efficient tracking devices were "vital for individual firms that will need to demonstrate to us that they are well on the way to achieving contract certainty".