The next collision in the regulation calander

It was always the suspicion that regulation would hasten consolidation and, while there was no mass exodus, it has proved to be a significant factor in the market's contraction. Little by little the specific ways in which the Financial Services Authority would do away with small firms - inadvertently or otherwise - have emerged, with the next watershed due to occur in 2008 when brokers will no longer be able to use goodwill in their balance sheets.

While this event has been on the regulatory calendar for years, it is one that is now looming. I hope there will be a lot more noise around this as opinions on the likely impact range from 'this will be a car crash' to 'I don't see the problem'.

However, as goodwill is eradicated on 14 January it is very likely that it will lead in turn to the eradication of brokers at the smaller end of the spectrum. That is because the move will debilitate brokers that are single entities, rendering them unable to secure debt against goodwill, thereby neutralising their ability to leverage funds for buy outs and acquisitions. Despite goodwill being recognised as an asset by the rest of the financial world - banks, accountants and the stock market - the FSA remains unchallenged in its view and its intention to foist it on the market. During the retail mediation activities return, the amount of goodwill for individual firms is visible to the FSA which has no doubt had some bearing on its stance. However, whatever the rationale the regulator may say it has for this, the suspicion that it just does not like or want to deal with small firms will probably be a more plausible explanation in the minds of many.

As regards the customer, if this drives out competition, as some are suggesting, as a natural consequence that will mean less customer choice and a major own goal for the FSA. A recent KPMG report suggests that larger firms that have holding companies and comfortable solvency margins are set to gain under the abolition of goodwill. Whether it is possible or desirable for small firms to set up a holding company to ring-fence goodwill and finances is a moot point. Some say it is not that simple others say that is precisely the answer. Because opinions about the consequences of this are so varied, brokers need to act now to ensure they are clear about the implications of this for their firm.