You have filled in the FSA's application form, but what happens next? Branko Bjelobaba explains
The deadline of 13 July 2004 for general insurance applications to the Financial Services Authority (FSA) has long passed, and figures show that 8,624 firms had applied for authorisation, of which, 4,843 were from the primary market and 3,781 were from the secondary market. In addition, 3,987 applications for variation were received.
However, the FSA has said 13 July was not the final cut off date. Straightforward applications are taking considerably less time and some have been turned around in less than six weeks.
But if you have applied, or are one of 2,715 primary firms or 1,096 secondary firms that have had your minded to authorise letter, don't sit back and think it is all over. Now is the time to ensure that your business will be compliant with the FSA Handbook, as of 14 January 2005.
Requirements
Have you carried out a gap analysis that shows you what needs to be done? If not, do you know how to do such an analysis?
If we think of the exercise being just like a car's MOT test it will be a lot easier to manage. Let's assume that it has two fundamental parts - one focusing on the business and the other on clients. This is not an exhaustive list and don't forget that for an MOT all checks have to pass - not one part can fail. If one part fails, then all of it could fail.
The FSA requires that all businesses are compliant with its high level standards which include:
• Principles for business - 11 key principles that all businesses must adhere to. If you don't know what they are then find out.
• Senior management arrangements, systems and controls - your business has to be well run and organised. Have you assessed the risks your business faces and where is your business continuity plan? Don't forget to make sure a copy of your plan is stored outside the office.
• Threshold conditions - these are the minimum standards for staying authorised. Condition four (adequate resources) and condition five (suitability) are important - make sure that you have enough financial, human and any other resources needed.
• Statements of Principle and Code of Practice for Approved Persons and the Fit and Proper Test for Approved Persons - there are seven principles - consider printing them off and pinning the list above your desk.
Other things to look at include:
• Bank accounts - have you decided which one you will need? Will you hold client money? You will need to change your bank account into a formal statutory or non-statutory trust account. The British Insurance Brokers' Association will shortly be sending letters to banks to assist with this. If some insurers have given risk transfer, you will still need one of these accounts for other client funds.
• Capital requirements - if you are handling client money you need net assets of at least £10,000 or 5% of insurance income (whichever is greater). If you propose to keep retail client money in a non-statutory trust, then you need at least £50,000 (or 5% if greater). Do you have this? Do you take commissions on a received basis? Now is the time to find out.
• Professional indemnity - make sure yours is adequate per the FSA requirements - a minimum of £1 million for any one claim and £1.5 million in the aggregate.
• Training and competence - you cannot ignore staff training issues. All staff that sell or advise or get involved with the business will have to be assessed as competent by 14 January 2005, otherwise they cannot do what they are currently doing. Make sure you make full use of free training events that are on offer. Don't leave this crucial bit until the very end.
Important client issues include:
• Insurance Conduct of Business - this rulebook covers the selling of general insurance to retail and commercial customers. Do you know when a commercial customer could actually become a retail customer? From 14 January 2005 all retail clients must have their renewal documents at least 21 days before the renewal date so make sure you get the invitations from the insurers in good time.
• Statement of Demands and Needs - this is not just the fact find. This is evidencing that the policy you are proposing for your client does indeed fit their demands and needs and it is your opportunity to tell them why.
• Complaints process - this will differ to the one you will have with General Insurance Standards Committee (GISC) - make sure you update it.
• Compensation - This is another new entry for your new terms of business. There is a lot for you to do. Firms that have been complying with GISC rules will find this exercise a lot easier, but there are several differences. Now is the time to sit down and carry out the gap analysis.
Branko Bjelobaba FCII, is a regulation & compliance consultant
COVER notes
• There are 11 key Principles for Business that all firms must adhere to.
• 2,715 primary firms and 1,096 secondary firms have received their minded to authorise letter.
