The UK Financial Services Authority (FSA) has written to British insurance brokers warning them to strengthen their finances in the face of a “challenging business environment”.

MD Supervision Jon Pain says the authority is concerned many UK insurance brokers “still cannot demonstrate to themselves (or the FSA) that they have adequate financial resources”.

“Our supervisory work with insurance intermediaries regularly shows that they are not paying sufficient attention to threats to the financial viability of their firms,” he says in a letter to principals. “Consequently the firms are not taking steps to guard against such threats or to develop management plans for the materialisation of those threats.”

Mr Pain says the FSA regularly finds weaknesses in insurance intermediaries’ client money-handling procedures. 

“These weaknesses raise the risk of an intermediary’s client money trust status being compromised and, subsequently, the funds becoming vulnerable to other creditors in the event of the firm’s insolvency.”