The Chief Executive of the FSA in a recent speech has talked about how the new FCA will approach prudential regulation of those firms for which it is responsible. This includes all insurance brokers.

According to Hector Sants, the focus will be on ensuring there is sufficient capital and liquidity to allow an orderly run-off without material consumer detriment or impact on market integrity. He describes this as a “gone concern” approach. It appears the FCA will not be monitoring the prudential solvency of firms with a view to preventing their insolvency.

This may be of particular concern to insurers where they make risk transfer arrangements with brokers under which the insurer, rather that the policyholder, takes the credit risk. Insurers will need to make sure they obtain appropriate protection for their money, and should not be relying on the FCA to ensure the solvency of brokers.

Firms’ compliance with the CASS Rules has been a recent focus of the FSA, and this may provide some comfort for insurers whose risk transfer arrangements provide for premium monies to be held on CASS accounts. On the other hand, the level of non-compliance with the CASS Rules identified by the FSA might be an alarm bell to many insurers.