Don't hide your head in the sand
Published in Niche Magazine 04/2004
Regulation is set to have a far-reaching impact on financial services over the next year, as the Financial Services Authority takes responsibility for general insurance in 2005. We look at how the developments will affect motor finance brokers, and asks if it is time that motor insurance brokers themselves were regulated.
It is certainty surprising that, as brokers in other markets face regulation, motor finance remains untouched. But a straw poll of the industry conducted by niche commercial finance says that motor finance brokers should be regulated, as a small minority are selling products poorly and tarnishing the industry's reputation.
' As members of the National Association of Commercial Finance Brokers NACFB we must provide best advice to our customers, but non-members, who are unregulated tend to be motivated by profit, often selling the client the wrong product simply to increase the margin.' says Graham Hill, managing director at Easy Vehicle Finance.
However, as Hill points out, industry regulation is likely to result in masses of bureaucracy for brokers. 'Money laundering has had an impact on the industry, increasing the paperwork of the average motor finance broker. Regulation may mean that we would lose some of the poorer brokers, but we may also lose some of the better ones.'
One development that may help the industry change is the announcement by the NACFB that it is re launching its motor vehicle finance arm in an effort to create self regulation in the sector. 'There is an urgent need for training and education, including car dealerships and accountants giving advice based on tax alone - the creation of a dedicated arm will go some way to achieving this.' says Hill
Martin Brown, managing director of Fleet Alliance, also believes that, although regulation of the motor finance industry would certainly clean up the sector's image, FSA regulation could involve huge amounts of paperwork for motor finance brokers. Brown sees the setting up of the division by the NACFB as a much needed and welcome step and a viable alternative to regulation. 'By launching the division, brokers will be able to join an organisation offering a voluntary code of practice,' he says. 'One of the main aims of the division is to publish a list of members that adhere to the code and to its principles. This will be made available to funders.'
If the motor finance industry is to remain unregulated, there is a need for an alternative, such as the NACFB to ensure that members of the sector act professionally. As Hill points out, 'One of the problems in any finance sector that remains unregulated is the lack of information available to the consumer. I am amazed that even in the mainstream motor press, the information that they provide is often far too general and even far from accurate!'
In our straw poll, most agree that there is certainly an urgent need for training and education in the market place, and the move by the NACFB to create a motor finance division is welcomed. However, direct regulation of motor finance brokers may one day become unavoidable; after all, anything that benefits the consumer should be welcomed with open arms.
The regulation of general insurance products
Regulation of the general insurance industry by the FSA is likely to have a major impact on motor finance brokers over the next year. This is being driven by the European Union's insurance directive. So far, general insurance has been regulated by the General Insurance Standards Council, but from 15 January 2005, there will be a new statutory general insurance regime overseen by the FSA.
So how will this regulation affect motor finance brokers? Nick Mohan, managing director at Perkins Slade, says there will be a major impact on the industry for brokers if they are involved in the selling of an accompanying insurance product for a motor finance deal. 'If vehicle finance brokers are involved in arranging, signing up a customer, advising on the merits of or recommending a contract, dealing as an agent, concluding a contract on behalf of an insurer or assisting in the administration performance of a contract then they will fall within the scope of FSA regulation,' he says.
This is, of course, an important change in the way vehicle finance brokers or, in fact, any finance broker conducts their business. But, according to Mohan, there is little appreciation on the part of motor finance brokers of how this new regulation may affect their industry and the choices available to them. They have a number of options. They can choose to become directly authorised by the FSA to become an appointed representative of a directly authorised principal, or to become an introducer to a directly authorised principal.
However, so far the facility for vehicle finance brokers to become appointed representatives or introducers has yet to be offered by funders or suppliers of insurance products. 'Brokers have to decide either to stop selling general insurance products or to get authorised directly by the FSA,' says Mohan. 'Failure to be authorised and still sell general insurance products will be a criminal offence.'
Brokers will need to have sent completed application forms to the FSA by 31 May 2004 to get an early application discount, and by 13 July 2004 to guarantee an answer from the FSA before 14 January 2005 when regulation begins. For example, standard application fees for a business turning over less than £1 million in general insurance products is £1,100 for electronic application and £1,200 for paper application.
Unfortunately, hiding your head in the sand is not an option, and failure to act could cause serious problems. However, a number of companies are now providing assistance by reviewing a business's general insurance activities, and advising on the best approach to training and on application to the FSA for direct authorisation.
One such company is Virtual Insurance Products, which is offering an FSA workshop on general insurance regulation to NACFB members for £500 (plus mileage and VAT). The workshop will cover the overall objectives of the FSA and the options available to you.
If you are a motor finance broker, you are selling accompanying insurance products and you wish to be directly authorised by the FSA, you will need to register your intention to apply so that the right form can be sent to you to do so. You can register via the FSA website at www.fsagov.uk/mgi or you can call the FAS's direct dedicated contact centre on 0845 6055525.
Published in Niche Magazine 04/2004
Regulation is set to have a far-reaching impact on financial services over the next year, as the Financial Services Authority takes responsibility for general insurance in 2005. We look at how the developments will affect motor finance brokers, and asks if it is time that motor insurance brokers themselves were regulated.
It is certainty surprising that, as brokers in other markets face regulation, motor finance remains untouched. But a straw poll of the industry conducted by niche commercial finance says that motor finance brokers should be regulated, as a small minority are selling products poorly and tarnishing the industry's reputation.
' As members of the National Association of Commercial Finance Brokers NACFB we must provide best advice to our customers, but non-members, who are unregulated tend to be motivated by profit, often selling the client the wrong product simply to increase the margin.' says Graham Hill, managing director at Easy Vehicle Finance.
However, as Hill points out, industry regulation is likely to result in masses of bureaucracy for brokers. 'Money laundering has had an impact on the industry, increasing the paperwork of the average motor finance broker. Regulation may mean that we would lose some of the poorer brokers, but we may also lose some of the better ones.'
One development that may help the industry change is the announcement by the NACFB that it is re launching its motor vehicle finance arm in an effort to create self regulation in the sector. 'There is an urgent need for training and education, including car dealerships and accountants giving advice based on tax alone - the creation of a dedicated arm will go some way to achieving this.' says Hill
Martin Brown, managing director of Fleet Alliance, also believes that, although regulation of the motor finance industry would certainly clean up the sector's image, FSA regulation could involve huge amounts of paperwork for motor finance brokers. Brown sees the setting up of the division by the NACFB as a much needed and welcome step and a viable alternative to regulation. 'By launching the division, brokers will be able to join an organisation offering a voluntary code of practice,' he says. 'One of the main aims of the division is to publish a list of members that adhere to the code and to its principles. This will be made available to funders.'
If the motor finance industry is to remain unregulated, there is a need for an alternative, such as the NACFB to ensure that members of the sector act professionally. As Hill points out, 'One of the problems in any finance sector that remains unregulated is the lack of information available to the consumer. I am amazed that even in the mainstream motor press, the information that they provide is often far too general and even far from accurate!'
In our straw poll, most agree that there is certainly an urgent need for training and education in the market place, and the move by the NACFB to create a motor finance division is welcomed. However, direct regulation of motor finance brokers may one day become unavoidable; after all, anything that benefits the consumer should be welcomed with open arms.
The regulation of general insurance products
Regulation of the general insurance industry by the FSA is likely to have a major impact on motor finance brokers over the next year. This is being driven by the European Union's insurance directive. So far, general insurance has been regulated by the General Insurance Standards Council, but from 15 January 2005, there will be a new statutory general insurance regime overseen by the FSA.
So how will this regulation affect motor finance brokers? Nick Mohan, managing director at Perkins Slade, says there will be a major impact on the industry for brokers if they are involved in the selling of an accompanying insurance product for a motor finance deal. 'If vehicle finance brokers are involved in arranging, signing up a customer, advising on the merits of or recommending a contract, dealing as an agent, concluding a contract on behalf of an insurer or assisting in the administration performance of a contract then they will fall within the scope of FSA regulation,' he says.
This is, of course, an important change in the way vehicle finance brokers or, in fact, any finance broker conducts their business. But, according to Mohan, there is little appreciation on the part of motor finance brokers of how this new regulation may affect their industry and the choices available to them. They have a number of options. They can choose to become directly authorised by the FSA to become an appointed representative of a directly authorised principal, or to become an introducer to a directly authorised principal.
However, so far the facility for vehicle finance brokers to become appointed representatives or introducers has yet to be offered by funders or suppliers of insurance products. 'Brokers have to decide either to stop selling general insurance products or to get authorised directly by the FSA,' says Mohan. 'Failure to be authorised and still sell general insurance products will be a criminal offence.'
Brokers will need to have sent completed application forms to the FSA by 31 May 2004 to get an early application discount, and by 13 July 2004 to guarantee an answer from the FSA before 14 January 2005 when regulation begins. For example, standard application fees for a business turning over less than £1 million in general insurance products is £1,100 for electronic application and £1,200 for paper application.
Unfortunately, hiding your head in the sand is not an option, and failure to act could cause serious problems. However, a number of companies are now providing assistance by reviewing a business's general insurance activities, and advising on the best approach to training and on application to the FSA for direct authorisation.
One such company is Virtual Insurance Products, which is offering an FSA workshop on general insurance regulation to NACFB members for £500 (plus mileage and VAT). The workshop will cover the overall objectives of the FSA and the options available to you.
If you are a motor finance broker, you are selling accompanying insurance products and you wish to be directly authorised by the FSA, you will need to register your intention to apply so that the right form can be sent to you to do so. You can register via the FSA website at www.fsagov.uk/mgi or you can call the FAS's direct dedicated contact centre on 0845 6055525.
