Putting the regulatory theory into practice

Many brokers are concentrating on getting Financial Services Authority authorisation but fewer are thinking through the implications of working under the FSA.

The new approach to regulation is significantly different from its predecessors, the General Insurance Standards Council or the Insurance Brokers' Regulatory Council. It is deliberately turning away from detailed prescriptive rules towards supervision based on high-level principles and standards of conduct.

The FSA will look to proprietors, directors and senior managers to ensure firms give quality advice to customers. It will also expect them to ensure there are adequate structures and controls in place to maintain appropriate standards.

The FSA has made it clear it will distinguish between responsible and irresponsible behaviour. Those who demonstrate adherence to the standards and principles the FSA sets can expect lighter and less intrusive regulation, but those that fail to do so can expect to face tough action, including financial penalties.

In more extreme cases, firms that fail to meet the FSA's 'threshold conditions' - the standards that must be demonstrated to gain authorisation and then maintained - face a streamlined enforcement process that may prevent them from taking on new business.

A clear understanding of what the FSA expects and an effective strategy to deliver it is necessary if companies are to avoid punitive attention.

Though companies may have put action in hand to manage authorisation projects and ensure staff are adequately trained, they many not have asked what will be required of proprietors, directors and senior managers. These are the people the FSA will hold accountable for errors.

It is not too early to establish or upgrade business processes, and companies must also make sure they are adequately trained and briefed. And then companies stand to benefit from the opportunities regulation will bring - competitors that do not prepare for the new environment.