The British version of the Financial Services Reform Act is going through its early stages, and brokers are growing increasingly restless about some of the proposals to regulate them more closely. One of the Financial Service Authority’s (FSA) atest plans is to force brokers to help pay for the Financial Services Compensation Scheme (FSCS), which levies money to pay for people’s losses arising from insurance mediation.

Institute of Insurance Brokers Director-General Andrew Paddick says brokers, unlike insurers, “are unable to factor anticipated or settled levies into premiums charged to policyholders at the point of sale. This is why brokers are extremely worried about their potential exposure under the regulatory environment ahead.”

“When the Financial Services Act came into force in 1986, honest and diligent brokers picked up the bill for countless multi-million pound scandals and I don’t want to see that ever happen again,” he said.

“If the FSA is not going to verify compliance before the new laws come into effect in January 2005 – and instead have boxes on the application form, tick yes or no, for questions such as ‘is your client account in proper balance?’ – then consumer entitlement to claim under the FSCS must be postponed until such time as the FSA is absolutely satisfied that all firms are compliant.”

Some of the proposed prudential requirements could impact on the capitalisation and profitability of some firms who have relied upon what may be considered by some to have been a relaxed trading environment in the past, Mr Paddick said.