Small firms supervision - Testing times ahead for small firms

Our enhanced strategy for small firms begins in Northern Ireland this month, kicking off a series of assessments that will cover 11,300 insurance, mortgage and investment intermediaries throughout the UK over the next three years.

We will only include insurance brokers selling 'protection products', such as critical illness, term assurance, income protection, and payment protection insurance in these assessments. Brokers selling more commoditised general insurance products, such as motor and household insurance, will not be assessed.

Designed to increase contact with small firms, the strategy combines support for brokers that embrace Treating Customers Fairly with a tough approach for those who are not delivering the right outcomes for their customers. It will see a revised regional FSA roadshow followed by visits or telephone interviews.

The new measures will test whether firms are achieving the 'TCF outcomes'. We said last year that small firms need to "up the pace of change" following our progress report, which found that only 45% of small insurance brokers met our March 2007 TCF deadline. We want to see the commitment we hear from firms translated into action for consumers. In many cases it can be achieved quickly, as smaller firms have fewer layers between those running the firm and those dealing with customers.

We plan to assess 3,000 small firms this year, and 4,000 next year. Visits will follow to those firms that caused us most concern during assessment. We will gain an insight into the quality and integrity of those running each firm and test the progress made on TCF. The results will help our risk-profiling of firms so we target firms posing the biggest risk to consumer protection and market confidence.

The enhanced strategy is good news for all sectors of the market, whether directly involved with our new assessments or not. Brokers selling lower-risk products can still expect to benefit from the additional help we will make available, in particular through our website and roadshows.

We will later this year be assessing how brokers have responded to recent changes to the Insurance Conduct of Business sourcebook, including those selling lower risk products, who are still on our regulatory radar.

- Andrew Honey, Head of insurance, Small firms division, Financial Services Authority.