Brokers are up to the challenge

Brokers are amazing creatures. For the past few weeks I have been travelling the length and breadth of the country, talking to hundreds of broking firms about the forthcoming Financial Services Authority regulation.

I expected brokers to be complaining endlessly about the regulator, as well as the market and the many other problems faced by the insurance industry.

However, brokers are a resilient breed and I've been delighted by the positive attitude of most of the market. Brokers have recognised that by embracing change they may well be able to produce real business benefits.

Some brokers remain concerned about the cost of FSA authorisation, however.

Smaller firms with annual incomes up to £1m - fees and commissions, not premiums - will be asked to pay £500 to apply for authorisation. This figure will double if they apply offline after 1 June 2004. Ongoing fees will start at about £750 per annum, according to the FSA.

These are not huge amounts, even for the smallest of firms, but the real crunch comes with the extra costs of complying. Complaints systems, training and competence structures, terms of business, and risk management plans are a few examples of the work brokers will have to pay for.

Add the cost of capital, the Financial Services Compensation Scheme and the Financial Ombudsman Service and the total starts to look very substantial.

Although some elements of the new rules will add to costs while providing few benefits, brokers should take a wider view. The more professional a brokerage becomes, the more successful it is. Brokers may have to spend a little more but they should find they will more than recoup the costs.

The brokers I meet have a great commitment to professionalism and I believe they have little to fear from the FSA. On the contrary, this investment can only improve their businesses and our industry.