The time has come for the FSA to start ‘patrolling the perimeter’ and ensure that general insurance (GI) is not being sold illegally by brokers who are not properly authorised.
In a statement issued on 7 July, Clive Briault, managing director of retail markets at the FSA, said: “Tracking down firms operating outside our regime is a major priority. By cleaning up the industry we are levelling the playing field for legitimate authorised firms. Firms that are conducting GI business illegally should act now and either become authorised or stop carrying out that side of their business.”
The FSA’s perimeter team has already carried out inspections among over 500 firms in Derby, Leicester and Nottingham and is soon to move into other areas of the UK. The FSA says it is selecting the firms it visits based on leads received from the industry and the general public and also the regulator’s own database of firms that registered or applied for registration but later withdrew.
No hiding place
The FSA is visiting both primary intermediaries – brokers whose main business is selling insurance – and secondary intermediaries such as motor dealers, travel agents, property managers, retailers and removal firms, for whom GI sales are secondary to their main business.
The FSA has said it is not setting out to put firms out of business unnecessarily but it will consider criminal proceedings if necessary. However, where breaches are inadvertent or result from a genuine
misunderstanding, the FSA will be more tolerant and options include ensuring the firms obtain proper authorisation.
There is nothing surprising in this move by the FSA. It has made it quite clear for some time that ensuring brokers are properly authorised will be an important priority in the early months of regulation. It has done it in the mortgage market and the time has come for it to do the same in the GI market.
Policing
Being seen to be policing the law is an important and effective way of ensuring the new rules and regulations are observed. Undoubtedly a few miscreants will be unearthed but I have heard no gossip on the industry grapevine to suggest that unauthorised GI broking is a widespread or growing problem.
In a bizarre way, catching a few wrongdoers and publicly hauling them over the coals is one way to demonstrate to consumers that their best interests are being looked after. Let’s not forget that one of the key reasons regulation was introduced was to ensure consumers maintain confidence in the financial services industry, its products, services and people.
So, what could the FSA find? As far as primary brokers are concerned, I would be surprised if many unauthorised intermediaries are unearth-ed. I’m sure there are probably still a few who are simply referring GI business to authorised mates who are then writing the business. ‘Interme-diaries’ should be authorised as such but it is almost inevitable that some won’t be working according to the strict letter of the law.
Internet abuse
As far as secondary intermediaries are concerned, I suspect there are inadvertent breaches taking place. For example, I believe internet search engines that provide lists of GI brokers need to be properly authorised but I suspect many are not.
I doubt however that organisations such as travel agents and motor dealers are operating illegally because they will be writing GI business on a regular basis and will have formal relationships with insurers who will have checked their status.
It can seem on occasions as if the FSA’s sole purpose is to make life as difficult and expensive as possible for brokers. If it’s not fees, it’s RMAR returns and if it’s not compliance paperwork it’s inspections, fines and penalties.
We need to remember however that having collectively embrac-ed regulation, it is now in the best interests of the industry for individuals who prefer to work on the wrong side of the law to be caught, punished and put out of business. If they are not then it will make life a lot more difficult for those who are willing to play the game by the rules.
It is entirely appropriate therefore that six months after the introduction of GI regulation, the FSA goes walkabout and finds out if everything is working as it should be.
The FSA will publish the detailed findings of its GI perimeter work later this year. Let’s hope the FSA finds one or two bad boys which will give consumers confidence that the system is working – but not so many that it gives rise to concern that it isn’t.
David Quick is managing director of CETA
