John Gorham: Industry must get ready for FSA regulation.
Regulatory change in the insurance sector is imminent.
By late 2004 it will be illegal to transact insurance activities unless intermediaries are authorised by the FSA. Although no one can predict how the FSA will affect the industry, no business can afford to neglect its responsibilities.
2004 may seem a long way off. Yet a lot of businesses have their work cut out to achieve compliance. Membership of GISC will be a major step towards achieving this goal. Some of the key areas that prospective authorised firms need to address include:
Management
The FSA will place responsibility with the board to ensure that controls are in place to manage risks. Closely monitored procedures will be implemented and senior executives will need to be approved by the FSA.
Procedures
It is unlikely the FSA will prescribe a list of procedures, but the rules will be proportionate to the size of the business. A more diligent approach to record keeping will be an essential feature of this new regime.
Training and competency
Training will assume even greater significance. The FSA will require businesses to provide evidence that they support employees through regular reviews.
Selling and advising
Competent staff are key components in ensuring that customers' needs are understood.
Solvency
The legislation will define the requirements placed on a business and the solvency levels that will need to be maintained at all times.
Clearly, there will be costs associated with the process. Annual fees and levies will impact on a business's resources. As the FSA's A Guide For Firms states: `The industry we regulate pays us fees to finance the cost of our regulatory activities.'
Regulation by FSA will also achieve what GISC was seeking to do under proposed Rule F42 - to ensure members only with intermediaries who GISC approved. This is a key issue. Who can take responsibility for the compliance of other companies in the distribution chain? And how will authorised firms assist their representatives to achieve compliance?
What can be established is that relationships between intermediaries and third parties need to become transparent.
The FSA wants all businesses to participate in the consultancy period. Though some businesses may, quite understandably, lack enthusiasm it is in the interests of all companies to achieve best practice.
In reality there is no alternative - businesses involved with general insurance must either fall into line with the FSA or withdraw from the marketplace. The new regulatory regime will have far greater powers than a simple remit to monitor records.
The FSA will also have the muscle to enforce compliance on businesses that are slow to react.
Businesses must prepare now.
