Brokers have had a long time to prepare for the new rules on goodwill, yet some have failed to deal with it
On Monday the FSA’s moratorium on goodwill comes to an end. Brokers will no longer be able to use goodwill – the intangible asset acquired when a business is bought – when calculating their capital requirements.
As a result, brokers will have had to restructure their business to plug the gap in the balance sheets left by the removal of goodwill.
The FSA has said it will act quickly against those that don’t and could ultimately close them down if the matter isn’t resolved swiftly. Brokers have had three years to address the matter.
How many brokers are likely to be affected by this? The answer is that no one, not even the FSA, has a definitive answer.
Last year the regulator wrote to approximately 600 brokers, which it had identified from regulatory return as potentially having a problem with goodwill, warning them to take action.
A few months later the regulator again contacted a number of brokers – it would not say how many – which it had continued and serious concerns about.
The question is how many of these took action? Brokers have had three years to do so, although many brokers left it to the last minute.
Senior people within the insurance market have suggested that as a many as a few hundred brokers could have failed to address their goodwill issues in time.
Whether that proves to be the case remains to be seen. But the actual figure may never come to light. The FSA will shut some down; but it will also look to take less severe action, where possible.
Struggling brokers may also be snapped up by consolidators, possibly at a bargain price – although some question whether a broker that has failed to address its goodwill issues is a good acquisition target.
The major insurers do not appear to be unduly concerned about the possibility of brokers being shut down for failing to deal with their goodwill. The affected brokers are likely to be very small in size, and their clients quickly snapped up by rivals.
