Broker Management Forum

Richard Adams: Brokers are still struggling to obtain advice from the Financial Services Authority via its helpline. Andrew, I know this isn't news to you, but is this service earmarked for improvement to provide better advice? And, if so, is there a timescale within which that will happen?

Andrew Honey: The contact centre is fairly new and we are dealing with a new regime but, obviously, we take note of the concerns that have been raised about the quality of advice and extent of the advice the contact centre is able to give. We are looking to improve that service on a daily basis.

Oliver Lodge: It seems to me that the issue is whether it is realistic for there to be a really comprehensive service or not. Has the FSA perhaps raised expectations higher than it is ever going to be able to satisfy in this area? Or is there something it can do by having an increased degree of specialisation for individuals within the call centre so that you can have a reasonably technical conversation with the relevant person in the team?

Richard Adams: There is concern among brokers that the FSA will provide principles and police brokers, but practical detail in the middle is something the regulator is less precise about. Will the FSA provide more detail in the future and, again, is there a time frame within which it hopes to do this?

Andrew Honey: Firms really need to ask themselves what it is they want. We have received a great deal of feedback from firms that actually say they do not want detailed prescriptive laws, they want principles. And, at the same time, we get a lot of feedback saying firms want a specific rule on this but, at the same time, could you please shorten the rule book? It is quite difficult to get this balance right and we have tended to go with what we think is the grain of the market, which is a more principles-based approach, which provides flexibility.

Richard Adams: The market is seeking clarification - is there a way that the FSA will provide examples of good practice?

Andrew Honey: It is very much about timing at the moment. We have started work on our priority areas, which - for general insurance - are looking at disclosure documentation. We are also doing work on payment protection insurance, claims handling and will also be looking at the controls that are in place over appointed representatives. Once we have finished that work, we will then feed back the results to the industry and that will be one of the first of the next phase of steps in communicating with the industry with a view to raising standards.

Oliver Lodge: There is a bit of a suggestion in one of these points, isn't there? That subjective requirements put into words like 'appropriate' are not a good idea. But, of course, that is where all the flexibility comes from. And, if the regulator removes all that subjectivity, we then get very inflexible requirements, which are unlikely to be very good for all the different firms, different types of customer, different types of business and so on. So there is a lot to be said for having that flexibility. But that does not mean that there isn't some scope for examples or case studies of a standard that the FSA would regard as acceptable. There is no reason why that shouldn't be there as an aid, particularly for smaller firms that prefer not to have to draft their own version.

Andrew Honey: There has been a lot of misinformation about what the FSA's approach will be. We consider ourselves to be dealing with a market that, by and large, wants to comply with the rules and requirements. In the vast majority of cases, our approach, when we come across an instance of non-compliance, will be simply to ask for corrective action to be taken - to explain where we see that there is a shortcoming and to ask the firm to correct that. So yes, there will be circumstances where we will have to take enforcement action where there is wilful non-compliance but it is an extremely expensive tool for us to use and it is not one that we will use lightly. And, in the vast majority of cases, we do not envisage that we will need to do that.

Oliver Lodge: Those remarks appear to relate to the conduct of authorised firms. What about the circumstances of a business that is not authorised and is therefore committing a criminal offence?

Andrew Honey: One of our first priorities - if not the first - after the authorisation date was to 'police the perimeter' as we call it, making sure that firms were not continuing to conduct business for which they would require regulation without having sought the correct permissions. We have a number of tools at our disposal in terms of how we deal with instances where we find that firms have not got the correct permissions for the activity that they are trying to do. It might also be entirely appropriate for us to explain to the firm that the particular activity in which they are involved requires authorisation and to help them through the process of authorisation, just as we did for all other firms. And, if we encounter that, that is what our approach will be.

Richard Adams: Andrew, I understand that the FSA has visited around 500 firms so far - what is early feedback showing?

Andrew Honey: We do not routinely visit firms or brokers, and look at every aspect of their systems and controls, their compliance with rules and requirements, etc. Rather, we look at the issues that we think impact on the sector as a whole. Over the course of the remainder of this year, we will be providing feedback on our work on disclosure. We will be feeding back on the work we are doing on PPI and we will also feed back on the work that we are doing on controls over appointed representatives. I think the work on claims handling will actually feed back next year. So I would like to hold back from really giving feedback at this stage because I do not think we are in a position to do that.

Oliver Lodge: There are a lot of issues that are common problems to a wide range of firms, such as client money, which are not very well understood. That is just the sort of thing where the FSA ought to be making lots of public statements; they ought to be providing lots of advice and ought also to be reviewing.

Andrew Honey: The feedback on this stage is not far off. We need to come back with something that is clear and considered, reflects the whole of the industry as we perceived it and is as well-thought-out in terms of providing useful assistance to the industry. And I do not think we want to be rushed in to doing that. I don't think anybody would thank us for it.

Oliver Lodge: I can understand that but I do think that there are too many consumers that will find themselves disadvantaged in the meantime as a result.

Richard Curtis: I would like to ask about the clarification on the claims-handling fee. Where we are in the market place, working with the broker market both regionally and nationally, one of the key concerns of brokers is how their clients' claims can be handled by whoever is handling them.

Andrew Honey: We have not yet fully embarked on the claims-handling work, but it is scheduled for this business year. So, we take note of your concerns and we certainly will want to feed back to you on that.

Kevin O'Flanaghan: Being in the funding business ourselves, we are getting lot of comments from brokers that and there is still that confusion out there. And, because the fully fledged implementation has been deferred for a year, in some sense we are going to prolong this for another year.

Richard Adams: The final issue that I wanted to debate concerns brokers handling client money and risk transfer. There is concern that the system for client money and risk transfer will be very difficult and expensive, particularly for small brokers.

Andrew Honey: In terms of client money, as you are probably aware, the FSA has done some work in the wholesale sector and we have indicated that we will be reporting back on that shortly. We are then going to follow on with work around client money in the retail sector later in the year. So we have now, from today, effectively reached the point where we expect that firms should have either a bespoke agreement or a terms-of-business arrangement in place with the insurers.

Oliver Lodge: This is, I am afraid, a classic example of where the regulator has in many ways done its best to help the industry. But the impact of this has been to make the rules more and more complicated. There are a lot of firms that do not really understand whether they are coming or going on this one. They find that they have a mixed-bag of money, some of which is subject to risk transfer, some of which is not and they then have a question as to whether to commingle or not.

Kevin O'Flanaghan: Confusion among firms could lead to errors being made, which could prejudice client funds. That is probably the greatest fear at the moment. People just - innocently or otherwise - do not quite know what they are doing.

Richard Adams: Are there any plans in the pipeline to make the disclosure of fees and commission levels compulsory?

Andrew Honey: Under our rules, fees must be disclosed to the customer. We do not actually believe that commission disclosure to retail customers would necessarily act as consumer protection because it would not necessarily help the customer make a better choice of product. So, for that reason, we have not pursued it. Obviously, if our supervision work leads us to consider that commission disclosure for retail customers is necessary, then we will reconsider the position.

Oliver Lodge: This just illustrates how important it is to have good compliance support within your business. If you are a very small business, that can be a real burden. And it is often not realistic to have a full-time compliance officer, so a lot of businesses will either have a part-timer or an external expert who does most of the compliance work for them. And that, very commonly, is the best answer for a small firm. But there is no easy answer, there is no cheap and simple way of doing this, it is a time-consuming and technical occupation.

Brokers can listen to the debate, submit questions before or during the proceedings and vote in the online polls, all from the comfort of their desks. To register as a member to participate in future debates, please visit the website at: www.brokermanagementforum.com

THE PANEL

Richard Adams, Editor, Professional Broking

Richard Curtis, National business development manager, Cunningham Lindsey

Andrew Honey, Manager, firm communication and education, small firms division, FSA

Oliver Lodge, Managing director, OWL Regulatory Consulting

Kevin O'Flanaghan, Managing director, Aascent

INTERACTIVE VOTE RESULTS

Do you think the regime under the FSA will eventually help the industry get the recognition it deserves?

Highly likely 10%

Highly unlikely 0%

Hopefully 90%.