Little sense from Sants

Let’s hope that the political bombshell caused by David Davis' resigning as shadow home secretary doesn’t divert David Cameron’s attention too much from other matters.

As a firm supporter of The Broker Network’s campaign to lobby MPs on the issue of mandatory commission disclosure, I’ve written to the opposition leader alerting him to the Financial Service Authority’s apparent determination to kill off the independent broking sector.

I’m also urging CETA’s membership to get behind the issue by directly contacting their own MPs and also ensuring the FSA hears directly from as many individual firms as possible.

My letter points out that, since the FSA took over the regulation of the industry in 2005 more than 40% of general insurance brokers have decided to sell up. The choice available to businesses and consumers has sharply reduced. Yet despite the damage already done, the regulator is pushing ahead with a further raft of requirements that go way beyond those needed to comply with the EU’s Intermediation Directive (or IMD).

“Since the FSA took over the regulation of the industry in 2005 more than 40 per cent of general insurance brokers have decided to sell up.

The FSA’s motives remain unclear. It’s been stressed to Hector Sants and his team that introducing commission disclosure will simply add further administrative and expense burdens on those brokers that have managed to survive. It can only benefit the direct insurers. Indeed, the review carried out on the FSA’s behalf by CRA International reported that the cost of the new regulations would amount to £87m and heavily exceed any likely benefits. The authors concluded that neither was there much evidence of demand for information on commissions from clients.

So if customers don’t want more regulation and the industry is opposed, why push ahead? As The Broker Network’s chief Grant Ellis has pointed out, the regulator has far more pressing issues on its agenda. I suspect that its chief and his officials have little understanding of the broking sector, how it operates and how strong competition means overly generous commissions simply aren’t an issue.

The FSA’s obduracy is at least partly due to the criticisms it has received being asleep on its watch as mortgage lenders such as Northern Rock and Bradford & Bingley built up problems for themselves in their reckless lending. Rather belatedly, Mr Sants wants to be seen as getting tough with irresponsible practices – hence for example the crackdown earlier this month on the City practice of short-selling. Unfortunately, the new ‘hard line’ appears to extend to things that don’t require fixing.

Mr Cameron should offer a more sympathetic ear – after all his party regularly proclaims its commitment to stemming both the increasing volume of red tape and the current administration’s inexplicable mania for “gold plating” any piece of EU regulation.

“Mr Sants wants to be seen as getting tough with irresponsible practices. ... Unfortunately, the new ‘hard line’ appears to extend to things that do not require fixing.

So Grant Ellis is to be applauded for his campaign to get brokers to push the issue of disclosure in front of politicians. As he points out, it’s time for us to take a stand against the insidious creep of regulation and to force the regulator to justify his actions. It’s apparent that many MPs are completely oblivious to the repercussions of discussion paper 08/2, and the disadvantages that its proposals, if enacted, would cause us in relation to our European peers.

He also correctly notes that the FSA apparently assumes clients’ lack of movement between brokers indicates a lack of choice – whereas it simply reflects the fact that most customers are happy with the service provided with the current insurance broker. The paradox is that if this costly and unnecessary ‘gold plated regulation’ is imposed on the sector, restricted choice will become a reality as more brokers merge or shut up shop completely.

David Quick is managing director of insurance network, CETA.