The FSA will look for high standards from wholesale brokers, say John Quigley and and Joe Egerton
In 2003 some wholesale brokers assumed that FSA regulation was a formality and that the FSA focus would extend no further than the retail book of business. In addition a belief existed that GISC membership was a cure-all that meant the FSA would cast only a cursory eye over such firms - tick the 'all in order' box and move on. It is now clear that this is not the case. The FSA high street firms division has a clear duty to scrutinise and monitor business that has the potential to leave the private policyholder ('the man in the street') out of pocket in the event that a policy fails to respond, or the premium or claims funds are misappropriated or lost.London market brokers (in the main wholesale brokers) will be regulated separately from the high street division by a dedicated team in the FSA headed by a senior and experienced manager. These brokers will therefore will be subject to scrutiny by people who are just as interested in the FSA's other statutory objectives of maintaining market confidence and preventing financial crime. Further, as the best Lloyd's brokers already recognise, it is simply wrong to assume that a wholesale broker has no impact on the end consumer. Retail brokers depend on the expertise of the wholesale broker to identify suitable insurers and to make sure that wordings and other important aspects of policies are correct.The FSA expects that by 15 January 2005 all UK trading insurance intermediaries, having achieved FSA authorisation, will have taken the steps required to become efficient, professional and compliant organisations.When the FSA looks at an authorised and regulated wholesale broking firm it will judge the firm by the standards of a market expert, populated by able professionals.
Superior knowledgeIn the event of some future insurance blunder the wholesale broker may find that the FSA regards it as the most responsible party on the scene, as it will be assumed to possess superior knowledge and experience, and through its professional standing be regarded as an expert in its field.Before 15 January 2005, wholesale brokers will need to ensure that their systems and controls meet the requirements of SYSC, that their employees have been appropriately trained and understand the day-to-day issues, and that the firm understands and acts in conformity with the FSA's principles. Wholesale brokers also need to look at the organisations they do business with.Another major challenge for wholesale brokers (particularly for those in the London market dealing with a plethora of intermediaries, introducers, reinsureds and insureds) will be managing the business relationship with each of these parties. This has to be handled in such a way as to ensure that every reasonable step has been taken to protect and preserve the interests of the ultimate client and the reputation of the London market. If London is to maintain its reputation as the pre-eminent market place for insurance and reinsurance business wholesale brokers must play their part in ensuring that these standards are achieved by all.