Q. What would FSA-regulation mean for my business?
A. Your business would have to comply with certain FSA rules - remember the FSA is there to regulate the selling of financial products. If you are authorised directly by the FSA, you will in particular have to:
Q. What are the financial effects of FSA-regulation?
A. Your business would have to meet certain capital resources requirements, the level of which depends on whether or not you actually hold your customers’ money when they buy an insurance related product through you. In simple terms, the capital resources of a company are the net assets as shown in the balance sheet, plus any subordinated loans, though there may be certain adjustments to make to this figure to meet the FSA definition.
You will also need professional indemnity insurance cover.
Q. If my business is caught by the rules, are there any alternatives to direct regulation by the FSA?
A. Yes. An alterative to being regulated direct by the FSA is to be an ‘Appointed Representative’ (AR) of a firm that is itself directly authorised by the FSA. An example would be one of insurance companies whose insurance products your business sells. Such a firm is known as a ‘principal’. There must be an agreement in place with the principal and the principal takes responsibility for the actions of its ARs.
There are no regulatory requirements for being an AR, although the principal firm will almost certainly have a set of rules that an AR must comply with.
There is also a second, more restricted type of AR, known as an ‘Introducer Appointed Representative’. As implied by the title, this is an AR whose scope of appointment is limited to:
If you are interested in this type of arrangement, you should contact the firms whose insurance related products you sell to see whether they offer this and on what terms.
Q. I think that part of what I do is caught by the rules - what should I do now?
A. Once you have confirmed that you are caught by the rules and would like to carry on selling insurance related products, decide whether you want your business to be regulated direct by the FSA or to be an AR. To be an AR is relatively simple, providing you can find an authorised firm that is willing to take your business on this basis. Remember to ask about what terms and conditions will apply to this type of arrangement.
To become directly authorised, you need to apply to the FSA. It is unlikely that many small and medium sized businesses will decide to go down this route. If you do, in the first instance further information can be found on the FSA’s website www.fsa.gov.uk
Q. What happens if I don’t comply with the FSA’s rules in this area?
A. It is illegal for a business to carry on a regulated activity in the UK unless it is authorised by the FSA, is an AR or has some other exemption. Failure to comply is a criminal offence, with a potential penalty of a maximum of two years imprisonment and an unlimited fine.