The release last week of the British Financial Services Authority’s (FSA) final rules for brokers under the impending financial services reforms – PS174 and PS159, which cover prudential and other requirements for brokers – has left the broker community reeling.

Mortgage and insurance intermediaries who hold client money during the completion of product transactions will be required to put it into a separate “non-statutory trust” or opt for voluntary “risk transfer”. Under this proposal – which will require additional capital of more than $120,000 – intermediaries must have in place some kind of arrangement which transfers to an insurer the risk of holding the client’s assets.

Not surprisingly, the policy has met with favour from some insurers, with Royal & SunAlliance saying it will rewrite its agency agreements.

The brokers are equally miffed over changes to the rules relating to PI cover. The initial proposal asked that brokers hold PI cover of either $1.6 million or three times their annual income, whichever was higher. The new proposal requires brokers to hold a minimum of $1.6 million per claim, and aggregate cover of the higher of either $1.6 million or 10% of annual income, subject to an upper limit of $72.7 million.

The FSA said these changes were made in response to questions about capacity, but concern is growing among broker groups. British Insurance Brokers Association (BIBA) chief David Hough said BIBA is “not overly happy” with the changes.