Financial Services Authority ( FSA ) – Thematic Work on Premium Finance
by Terence Clark
Brokers will be aware of the recent thematic work undertaken and the largely good news is that the regulator did not see any major issues .
The fact sheet issued following this work can be found at - http :// www . fca . org . uk / static / documents / factsheet-general-insurance-brokers . pdf
However , one important fact that has arisen from this is contained in the introduction , which has been included below .
“ Arranging premium finance plans alongside general insurance contracts has become an increasingly important source of revenue for many insurance brokers . When you arrange premium finance in conjunction with arranging a contract of insurance , we consider it likely that this constitutes part of the regulated activities you perform for your customer . This is because arranging premium finance is part of what you are doing when ‘ making arrangements for another person ….. to buy …. a general insurance contract ’ ( Glossary Definition summary of article 25 ( 1 ) of the Financial Services and Markets Act 2000 ( Regulated Activities ) Order 2001 ( SI2011 / 544 )).”
As you can see from the above , the Financial Conduct Authority ( FCA ) now considers it likely that all income that a broker receives from arranging such finance is part of their regulated income . This is not quite saying that it is , but as we all know , the regulator rarely gives a definitive view on such matters .
If it is part of the regulated activities , a direct result is that when you complete your GABRIEL return you should include this portion of income in your income from regulated activities and in particular , the annual Section J element .
This does have the unfortunate impact of potentially increasing your FCA Fee levy , which is based on a percentage of your income from insurance mediation activities .
In the past , many brokers have considered this income to be outside of their regulated activities , so this pronouncement may alter the position and the regulator may now expect you to declare this going forward on your future returns as part of your income from insurance mediation activities .
Definitive guidance would have been of some assistance . However , the summary within the FCA factsheet states – Firms need to ensure they :
• have appropriate processes and controls in place to identify whether arranging premium finance constitutes part of the regulated activities they perform for their customer ;
• are aware of how the FCA Handbook applies to arranging premium finance as part of their regulated activities or as a connected or ancillary activity .
Therefore , it is important that all firms carefully identify , consider and document whether they believe such activities as premium finance form part of their regulated activities , and if they do , ensure that their internal procedures reflect this .
Please speak to your usual RWA consultant or the helpdesk if you have any queries .
Join the discussion 28