FCA digs for details on financial resilience of brokers and MGAs


The Financial Conduct Authority has sent out letters to approximately 300 brokers and managing general agents asking them to provide detailed information regarding their financial resources and client money accounts.

In the letter seen by Post, the FCA said: “Firms prudentially regulated by the FCA play an important role in supporting the functioning of the economy. During this time of stress, we expect firms to meet this responsibility by planning ahead to ensure the sound management of their financial resources. This includes taking appropriate steps to conserve capital and to plan ahead for how to meet potential demands on liquidity.

“We want to see firms continuing to operate in this challenging period. As part of our ongoing monitoring of the firms we regulate, we are writing to you to request information on some aspects of your financial resources.”

The nine page survey asks general insurance intermediaries, including MGAs, to provide information on their financial resources.

Firms have until 4 May to provide information on their resources for the period from 1 April to 30 June.

FCA said that a non-response will influence the regulator’s future interactions with the firm, in particular its assessment of the firm’s compliance with the Principles for Business.

Branko Bjelobaba, compliance consultant, said: “There are concerns with many businesses failing or trading in an extremely difficult climate that they will need less insurance or no insurance at all and this will then have a direct impact on brokers that have arranged their policies. The FCA wants to ensure that brokers are looking after their own financial resilience and have taken steps to protect themselves and anticipate what could happen. The FCA also has concerns around clients having BI claims turned down and how this could possibly result in negligence claims against brokers.”

Dispute and industry experts have previously warned that with most BI policies not expected to pay out for coronavirus closures this could lead to an uptick in legal action against brokers.

Bjelobaba added that whether FCA is picking up on issues or being a prudent regulator, for now it is “finding out how brokers are coping”.

He said: “There’s only been one broker that’s been found in default of the financial compensation scheme recently that was flagged up today. [The FCA] is just being prudent and finding out how brokers are coping.”

“With no doubt, commercial clients are suffering because of what’s happening in the economy and some are suffering more than others,” Bjelobaba said.

With cross-sector furloughs in place insurance demand has decreased.

Bjelobaba said: “[As a result] brokers will suffer because of the insurance requirements are less, then they’ll be returned.

“I have spoken to insurers and there are some brokers saying they don’t want to give their bit back. So whether their bit is going to cause them financial stability or they just don’t want to give it back, so there are concerns here.”

Bjelobaba added that the survey does not necessary signal that the FCA is majorly concerned over financial resilience.

He said: “It is just sort of keeping its finger on the pulse and trying to work out what’s happening. It is being cautious, but that’s its job as a regulator.”

On brokers and how they are finding the current siatuation, he added: “They are being cautious themselves and monitoring the situation. A prudent broker will be stress-testing its business and working out whether it’s good, medium or bad, adopting various scenarios to evidence where they would be.”

He explained: “If you are for example a broker and your specialism is on the Indian restaurants or fish and chip shops or aviation – clearly your clients are suffering a huge time and they may be saying to you that we need to make radical changes to our insurance programme, and as a consequence, their broker is going to earn less out of it.”

Information sought by the FCA

  • Estimated revenues for next 3 months
  • Fixed operating costs
  • Have you made staff redundant or furloughed any, or any other measures taken to reduce costs.
  • Expected savings in operating costs
  • What financing/debt repayments are due
  • Cash at bank as of last month
  • Will you be arranging new financing in next 6 months and how much
  • Cash flow estimates
  • Client Money Account balances as of last month
  • Any shortfalls in client money
  • Percentage of your business that is under Risk Transfer
  • Balance of all RT monies as of last month
  • Top three categories of business – GWP and customer numbers
  • Top three insurers you place business with
  • Do you use – statutory auditor, client money auditors, accountants or administrators and details of them
  • Key contact for financial matters
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