In an Insurance Times news story on 24 October, Gary Dixon, managing director of PYV Corporate Resourcing argued that the costs of complying with FSA regulation could drive up to 25% of brokers out of business. Here, Grant Ellis, managing director of The Broker Network, debates some of the points with Dixon

Grant Ellis: Gary, I read your views with an increasing measure of incredulity. You seem to be suggesting that the cost of regulatory compliance for most of the current crop of GISC members could easily be north of £100,000 per firm, forcing up to 25% of such firms out of business.

Gary Dixon: That's right, although as the article indicated, costs will vary depending on the size of the business and whether fee earners do the work or they bring in a compliance officer.

Ellis: I accept there will be a cost to regulatory compliance for brokers, but the magnitude you speak of does smack a little of scaremongering. After all, we do not yet know the extent of the regulation which will govern us, and will not know for some time.

Dixon: The whole point of raising this issue now is to inject some realism into the debate before it is too late. People who don't recognise the need to change, or at least prepare for change right now, will suffer later on. And the fact that we don't know the fine detail of the regulation is no excuse for sitting idle. An FSA framework is already in place for financial advisers. This was launched last year as N2. While the rules applying to brokers won't be exactly the same, they and their advisers should be able to see the FSA's general thrust.

Ellis: Aren't all GISC registered firms already getting to grips with compliance with the GISC rules? Surely, some of the compliance costs have already been incurred?

Dixon: Sadly, not all brokers are GISC members, so there are many businesses out there that have not even started on the compliance path. But it's also critical to recognise that the GISC's rules are only a very pale imitation of the likely FSA rules. On this subject, I was surprised to see your website describe compliance with the GISC's rules as an "onerous and continuing obligation". If you think the GISC regime is onerous, you'll find the FSA one draconian, if the IFA experience is anything to go by.

Ellis: We may have to agree to disagree on that, but there is a point on which we find common ground. The age profile of the broking community will mean many retire before statutory regulation becomes a reality. And that may be, in numeric terms at any rate, more than 25% of the current broker base. But those who have decided to stick around after 2004 are already looking for help with the anticipated compliance issues. Not surprisingly, many are contacting us.

Dixon: I'm glad to hear that people are contacting you - as they are me - but my real concern is that many people are not. A worrying number of brokers appear to think that the transition will be easy. That's not the case, brokers must recognise they need to act now to safeguard their business in years to come.

Ellis: In the original article you suggest that networks would struggle to sell the concept of banding together to share compliance costs. Networks have been an established part of the IFA regulatory scene for some 15 years and in general insurance for more than seven. Why will we struggle to attract brokers to us? The mantra of "doing things only once" has more relevance to compliance costs than just about anything else. Why reinvent the wheel? Let the network do the leg-work and cascade the results down to its members. Brokers can, and do, see the sense in that.

Dixon: I'm not suggesting that existing broker networks will struggle to sell the concept of banding together to share costs. But I do believe that the practicalities of the situation will leave the networks with little time to digest the proposals, develop a product offering and market it successfully before some of their members have been forced to make their own decisions. Then you have to add the fact that members of unregulated networks will have to apply directly to the FSA for authorisation. Their individual circumstances will be unique, making it hard for the networks to develop a one-size-fits-all response.

Ellis: I challenge your numbers. I don't think you credit brokers with enough resilience or foresight if you think that a little thing like complying with a few pragmatic regulations will put them out of business.