Regulation - Brokers fall short on TCF

According to compliance research conducted with over 100 general insurance brokers and mortgage intermediaries, there is still much work to be done in order to increase understanding and compliance with the Financial Services Authority's regulations.

In fact, some of the results could be extremely worrying for the regulator as yet another FSA deadline approaches in December. Julie Alderson, director of Management Services 2000 (which launched compliance specialist Branko's measurement tool, mysatcom.net), said: "The findings demonstrate a need by many firms to improve their compliance infrastructure."

In particular, appointed representatives appear to be falling through the net. Among a litany of other failures, brokers that use such networks are not carrying out financial checks on their ARs, according to the research.

Despite significant concerns, 73% of GI brokers appear to have met their Treating Customers Fairly targets already, although MS2M believes that some of the results could be as a result of to a misunderstanding of the requirements.

Governance compliance, including systems and controls, succession planning and capital requirements, is especially poor - 32% said that these were not fully in place; in particular, senior management arrangements were considered to be neglected.

Of those surveyed, 30% appear to have problems regarding approved-person requirements, which included questions such as "Can you demonstrate that you have contingencies in place to replace an approved person should they leave or be absent for longer than 3 months?" and "Can you demonstrate that management responsibilities have been formally allocated to approved persons and other senior managers?"

Meanwhile, almost 88% of the respondents believed that they are complying with the rules on selling and policy administration, which includes complaints handling.

The FSA recognised the findings and said that directly authorised firms should understand that the responsibility for compliance rests with them rather than with its support network.

Ten questions that intermediaries failed on

1. Does your compliance-monitoring programme for appointed representatives include financial checks?

2. Does your firm have a process in place to continually assess an approved person's fitness and propriety for their role?

3. Can you demonstrate you have contingencies in place to replace an approved person should they be absent for longer than 3 months?

4. Has the firm established written procedures in regulatory returns?

5. Do you have a documented recruitment process?

6. Can you demonstrate that there are contingency plans in place for dealing with a crisis and do you have a business continuity plan?

7. Do you collect sufficient information to establish why the advised method of raising funds is preferable to alternative methods?

8. Do you have processes in place to ensure the secure transmission and receipt of communications by e-mail?

9. If you sell add-on products or optional extras with a general insurance policy such as legal expenses cover, can you ensure that, if they are sold on a different basis (e.g. the optional extras are non-advised), that your status disclosure and statement of demands and needs clearly shows this?

10. Does the firm have procedures for reconciliation of bank accounts?