In particular, firms will now be able to decide whether to become directly authorised by the FSA or to become an Appointed Representative of a directly authorised firm.
Today’s statements set out the standards that firms must meet and the resources they must have to become authorised by the FSA. They also finalise the details for Appointed Representatives status, which is an alternative to becoming directly authorised by the FSA.
Sarah Wilson, FSA Director of High Street Firms said:
"Today marks a milestone for the insurance and mortgage industries. A detailed consultation on major parts of our regime is now complete.
"Firms now have all the information needed to take their major business decisions in advance of regulation. We expect large numbers of firms to apply for direct authorisation. Application packs will be available in November and we will be providing firms with help and support through our website, a dedicated contact centre and training events.
"Whether a firm chooses to be directly authorised or to seek a principal to take responsibility for their compliance, our measures will ensure that consumers are properly protected in a proportionate way."
Financial safeguards
In the light of feedback received, the FSA today modified its proposals for CP 174 (Prudential and other requirements for mortgage firms and insurance intermediaries) in a few key areas.
These are:
A revised approach to Professional Indemnity Insurance (PII)
Some firms will find the PII requirements applying to them are reduced and the conditions have been simplified. These changes recognise both the difficulty some firms may face in buying PII cover in a hard market and further analysis undertaken by the FSA, which showed that these lower levels are still proportionate to the risks arising in these markets.
Introduction of a ‘non-statutory’ trust for segregating client money
Following concern about the costs of CP 174 proposals for protecting client money, intermediaries will be allowed to hold both retail and commercial client money in a non-statutory trust, which has greater flexibility than the alternative ‘statutory’ trust (see note 2). These client money requirements are a step forward in consumer protection across the market and the increased flexibility should significantly reduce the costs to firms.
Revised regulatory capital requirements
Firms will be allowed to count goodwill towards their regulatory capital requirements for three years from when the FSA’s new regulatory regime for insurance mediation comes into force in January 2005. In addition, the capital requirements for intermediaries have been simplified to:
* The higher of £5,000 or 2.5% of annual income for intermediaries not holding client money; and
* The higher of £10,000 or 5% of annual income for intermediaries holding client money.
Appointed representatives
Following consultation in CP159 Appointed Representatives – extending the current regime, the rules on investment and mortgage business are essentially unchanged. ARs are allowed one principal for all investment business and two for mortgages – one for regulated mortgages other than lifetime mortgages and one for lifetime mortgages.
However, the rules for general insurance have been substantially revised in the policy statement published today.
They are:
* no limit on the number of principals an AR can have;
* principals must establish "multiple principal agreements." These are arrangements setting out how principals will share responsibility for ensuring that an AR complies with FSA rules; and
* a ‘lead’ principal must take responsibility for customers’ complaints.
