Broker bodies raise alarm over cost of new regulator

The Treasury has sparked fears that its new financial services regulatory regime will lead to further increases in fees and levies.

The joint response by Biba and the Institute of Insurance Brokers (IIB) to the Treasury’s consultation paper on the proposed Financial Conduct Authority (FCA), shown to Insurance Times, flags up cost concerns about the new regulator.

Under the government’s shake-up of City regulation, the FCA is being set up to oversee conduct of financial services firms with a remit to nip problems like PPI mis-selling in the bud.

The Treasury paper, outlining the new authority’s powers, states that “a considerable investment in resources will be needed to deal with these significant supervisory responsibilities”.

The Biba/IIB joint response says the statement will fuel brokers’ fears that the new regime is likely to increase fees and levies. “Any increase in costs for the professional insurance broking sector would be unjustified,” it says.

The associations’ response warns that recent increases in the level of fees and levies, which Biba research has established are the highest for insurance brokers across the EU, already threaten the viability of many firms.

The two bodies also express concerns that brokers will be driven out of business unless the new conduct watchdog reins in its regulatory demands.

The joint statement says: “A decline in the availability of independent advice for consumers is inevitable if the number of insurance broking firms continues to reduce in the face of disproportionate regulatory oversight.

“In order to maintain a wide choice of products, services and providers, we would like to see regulatory barriers lowered wherever possible to promote business development and innovation. This would also correspond with the government’s much-vaunted aim of cutting red tape for businesses.”

The response, the first joint submission by the soon-to-merge Biba and IIB, raises concerns that brokers will be mired in rules designed to protect depositors and investors, urging the government to take a proportionate approach to the regulation of the broking sector.

And it urges the FCA, when it is set up, to simplify the current handbook to better meet the needs of insurance brokers and to give small intermediaries a bigger say when drawing up its rules and regulations for the sector.

Biba chief executive Eric Galbraith said: “The creation of a new regulator gives us a unique opportunity for a fundamental review of the way general insurance brokers are supervised.

“We would like the new regulatory regime to be more approachable, more knowledgeable about the markets and more sensitive to practical aspects of compliance.”

The submission of the response follows the publication of a factsheet on the FSA’s website, showing that some brokers are regularly misleading customers about the provision of optional extras.

A review carried out by the FSA shows that, in 30% of cases the information presented by brokers to customers about such ‘add ons’ was “misleading”.

In 70% of the transactions reviewed, brokers presented information that was “unclear and potentially misleading”. The FSA factsheet states that the FSA will act against firms that have deliberately misled their customers.

Responding to the FSA’s findings, regulation consultant Branko Bjelobja said: “If a GI broker, who claims that less regulation is needed, sells insurance products that a customer does not need or want, or won’t work, or will never be claimed against, or inaccurately describes the products or services they offer, then that surely is totally and utterly unacceptable?”

We say …

? The Treasury must heed the calls for proportionate regulation of the broking sector outlined in this response. Otherwise, brokers risk being saddled once again with a regime designed for much riskier activities.

? It is good to see the two broker bodies starting to work together. Given widespread fears that the new super-Biba will become a big boys’ club, small brokers will be especially heartened to see that this response prominently addresses their interests.