At a glance
- Host of new rules add to compliance headache for brokers
- Brokers keeping close eye on messages and activity of new FCA
- Brussels also looking to alter industry landscape with new regulations
It seems that brokers are currently being swamped by regulation, regulation and yet more regulation.
Steve White, the new chief executive of UK trade body BIBA and a fount of knowledge on all things regulatory, told delegates at its annual conference in May that “compliance is extremely important, it underpins everything that brokers do.”
Janet Cooper, Compliance Business Partner for Commercial Broker at Zurich, concurred: “Keeping up with regulatory developments is hard, but it is a necessary part of the compliance role.”
And it is not just new regulations; it is new regulators, in the guise of the Financial Conduct Authority (FCA), which took over from the now-defunct Financial Services Authority (FSA) in April, who are also beginning to reshape the UK broker landscape.
It is difficult to keep on top of all of the regulatory changes
John Thompson, Account Executive, Gallagher Heath
The FCA, for instance, has recently launched a thematic review into how brokers are managing conflicts of interests with their insurers and clients, and whether brokers are actually acting in the best interests of their clients. It is also expected to publish new rules on client money in the coming months.
“There has only been around 100 days of FCA regulation, but they have already made a big impact,” said Janet. “The messages and activity over the last three months provide a clear indication in terms of the regulator’s expectations from insurers and brokers.”
However, others are not convinced that the new watchdog necessarily has more powers than its predecessor.
“I am not sure that we as commercial brokers fear the FCA more than the old FSA,” said John Thompson, an Account Executive at Gallagher Heath. “I think it is difficult to judge until such time as there has been a precedent set.”
One of the main differences of the FCA is to ensure that consumers are better protected, which is a subtle change from the previous regime of the FSA that tried to oversee the whole financial services sector.
“The FCA’s new powers and the way in which it will use them will give greater attention to consumer-related issues,” said Janet at Zurich. “That is not a bad position from a compliance perspective.”
And then there is Europe, and more specifically the proposed second incarnation of the Insurance Mediation Directive (IMD2), which promises to ruffle a few feathers with the introduction of commission disclosure for broker earnings and the disclosure of sales incentives and bonus arrangements.
Although it is not scheduled to become law until nearer the end of this decade and could yet be watered down – it still has a long way to travel through the corridors of political power in Brussels – the push for greater transparency in the industry shows no sign of abating.
“It’s not just the here and now we have to consider, we must also consider the future and the direction of travel regulation is taking, both in the UK and Europe,” said Janet.
Keeping up with regulatory developments is hard, but it is a necessary part of the compliance role
Janet Cooper, Compliance Business Partner for Commercial Broker at Zurich
“IMD2 has the potential to make a big impact. Any regulatory development that has the potential to make a material impact, either now or in the future, is worth making provision for. Elements around consumer protection and commission disclosure are worth particular consideration.”
Easy as A, B, C?
From the HSE to the EPC, brokers also need to be aware of changes to a host of other regulatory acronyms that are affecting their customers, which merely adds to the workload of brokers.
“It is difficult to keep on top of all of these changes,” said John at Gallagher Heath.
“Although, what you are seeing today is that many clients are more sophisticated insurance buyers and quite often a client will mention a piece of new legislation that they have read about or heard about that they feel might impact on their insurance programme before you have a chance to roll out a technical bulletin on the subject matter.
“But that is reflective of the sort of people we are sort of dealing with these days compared to maybe, say, 10-15 years ago.”
Following the financial crisis, the financial services sector in general has been tarnished in the eyes of the general public, resulting in some customers losing faith in the industry.
“It is hard, but it’s not just about regulation – the focus of the regulator also includes regaining trust in the financial services market,” said Janet at Zurich.
“This should be an industry concern and we all must play a part in ensuring our customers trust the market.”