FSA insurance regulation: the new rules explained

Financial Services Authority director of small firms Lesley Titcomb looks at what FSA regulation of insurance will mean for travel agencies.

The Government is introducing the regulation of connected travel insurance (policies bought with a holiday, travel tickets, accommodation or a tour) by the Financial Services Authority.

 

I'd like to tell you a bit more about what this could mean and give some tips on what you can do next.

What is the FSA?

 

The FSA is an independent organisation set up by the Government. It is responsible for regulating financial services in the UK. Our broad task is to achieve a marketplace run in an efficient, orderly and clean manner while ensuring customers receive a fair deal by being properly informed and appropriately protected.

 

We regulate most financial services markets and firms, setting the standards they must meet and taking action if they fail to meet them. We appreciate your main business of selling a travel product is far removed from financial services. Over the course of this year, we aim to help you understand regulation and take a decision on how you proceed.

Act soon

 

Our main message is that this is something you need to address and start thinking about now. The final FSA rules are being discussed at the moment, so you have a limited amount of time in which to have your say on them.

 

You'll also need to consider the choices available to you and prepare your business accordingly over the course of this year. You will need to act well before the beginning of next year if you want to continue to sell connected travel insurance legally.

Options available

 

If your firm wants to continue to sell connected travel insurance there are options available. One is to be directly authorised by the FSA, while another route is to become an appointed representative – with a regulated firm responsible for you.

 

You can also act as an ‘introducer appointed representative', which means your firm would not be able to sell insurance, but could direct customers to an authorised seller.

Our proposed rules

 

The consultation paper on our website contains our proposed rules along with an explanation of how the FSA regime will work. At this stage these are just proposals, and the final rules won't be issued until after those affected have had a chance to have their say.

 

You can give us your views by filling in the response form on our website (see Top Tips below). Our ultimate aim is to introduce a regime that ensures customers who buy connected travel insurance are treated fairly by firms that are soundly managed and well capitalised. We want to do this in a way that is proportionate and reflects the type of business that travel firms do. We do not want to over burden you with new requirements, but we recognise that connected travel insurance is an important product for millions of consumers. So we will do our best to introduce a regime that works for firms and their customers. Most of what we require is just good business practice, and if your firm is already well managed, you will probably be able to make a smooth transition to the FSA-regulated world, if you choose that route. For example, if you plan to become regulated by the FSA, your firm would need to have an approved person, responsible for its insurance business. We also expect you to have competent staff selling insurance and ensure customers receive clear, fair information about the products they sell, which is not misleading. There will also be other requirements, such as the capital we will require your firm to hold, and the levels of professional indemnity insurance we expect you to have in place.

Next steps

Our consultation will close on March 18 2008. We will consider the responses and finalise our draft rules by early June 2008. We will start accepting applications for new authorisations from June 30 2008. Regulated firms must pay an application fee to the FSA and we will give an application fee discount of 30% for applications received before September 30 2008. All regulated firms also pay an annual fee to the FSA, so you need to take this into account, along with the other associated costs of being regulated, when you make your decision on how to proceed. If this is the route you choose, then you should have your application in to us before November 15 2008 to ensure your firm is able to sell connected travel insurance once regulation begins.

Key Dates

• February: Publication of draft FSA application forms
• December 18 2007 to March 18 2008: Consultation on FSA proposals
• May/June 2008: Publication of final FSA rules
• June 30 2008: FSA opens for Connected Travel Insurance applications
• September 30 2008: Deadline for early application discount
• November 15 2008: Deadline for interim authorisation
• January 1 2009: Regulation begins.

Top Tips

• Act now to familiarise yourself with what the FSA proposes by reading the FSA consultation paper
• Consider your options – should your agency become fully authorised, or could you take another route, such as becoming an appointed representative or an introducer?
• Take a look at the FSA website to read the FSA's frequently asked questions and the timeline
• Use the website to sign up for the FSA's e-mail alerts if you want more information about becoming authorised.
• Contact your trade association to see if it can provide help and support.