FCA authorisation for insurance brokers

If you want to arrange, advise on, or assist with insurance contracts in the UK, you need FCA authorisation as an insurance intermediary. This includes insurance brokers, agents, and advisers.

The alternative is to become an Appointed Representative of an already-authorised firm, which has its own requirements.

Understanding insurance intermediary authorisation

Who needs authorisation?

You need FCA authorisation if you:

• Advise customers on insurance products
• Arrange insurance policies on behalf of customers
• Assist in claims handling under policies
• Introduce customers to insurers (unless exempt introducer)

You do not need authorisation if you're:

• An Appointed Representative of an authorised firm
• Making exempt introductions only (limited activities, no advice)
• Administering insurance claims as the insurer's employee

Types of insurance permissions

Common permission combinations

• General insurance broker - advising and arranging non-investment insurance
• Life insurance adviser - advising on life policies (additional competency requirements)
• Commercial broker - general insurance for business clients
• Wholesale broker - reinsurance and Lloyd's market

Professional indemnity insurance (PII)

PII is mandatory for all FCA-authorised insurance intermediaries.

Getting adequate PII

• Shop around - specialist insurance broker PII providers understand the market
• Check exclusions - FCA has concerns about exclusions that undermine cover
• Review annually - cover must be in place at all times
• Notify FCA - if you cannot obtain adequate cover, tell FCA immediately

Capital requirements

Important: If you hold client money, you must have a client money trust arrangement (statutory or non-statutory) and meet additional capital requirements. Many brokers choose "risk transfer" arrangements where client money goes directly to the insurer to avoid these requirements.

Customer disclosure requirements

You must provide customers with specific information before they buy.

Getting disclosure right

• First contact - disclose your status and who you act for
• Before advice - explain basis of advice (fair analysis, limited panel, single insurer)
• Fees and commission - disclose if you charge fees. Disclose commission to commercial clients on request
• IPID - provide Insurance Product Information Document for non-life products
• Durable medium - if disclosing orally, follow up in writing

Complaints and the Financial Ombudsman

Setting up complaints handling

1. Appoint a complaints handler
2. Create written complaints procedure
3. Train staff on recognising and handling complaints
4. Log all complaints
5. Respond within 8 weeks maximum
6. Include FOS referral rights in final responses
7. Report complaints data to FCA

Appointed Representative arrangements

An alternative to direct authorisation is becoming an Appointed Representative (AR) of an already-authorised firm.

Is AR status right for you?

Benefits:

• No FCA authorisation application needed
• Principal provides compliance support
• Can be faster to set up

Drawbacks:

• Principal takes percentage of income or commission
• Less independence - principal controls your activities
• Principal's compliance failures affect you
• Enhanced AR regime means more oversight from December 2022

Direct authorisation is slower and costs more to set up, and you carry the full compliance burden yourself. In return you control your strategy and product range, keep all your commission and fees, build your own brand, and can later appoint appointed representatives of your own.

Preparing your application

You apply through the FCA Connect system. Along with the application form, the FCA expects:

• a regulatory business plan tailored to your firm, not a generic marketing document
• financial forecasts showing how you will keep meeting your minimum capital requirement
• a Form A, statement of responsibilities and CV for each approved person
• the IT self-assessment questionnaire and the supplement for selling non-investment insurance contracts
• your principal place of business, a UK bank account for the firm and your Companies House details
• client money accounts, if you will hold client money or assets
• your customer journey, conflicts of interest policy, policy on consumers in vulnerable circumstances and evidence of how you will meet the Consumer Duty

The FCA generally considers a serviced office inadequate as a principal place of business. Anyone who will hold a senior management function needs sufficient insurance experience, a point on which past applications have failed.

Most general insurance intermediaries pay the Category 4 application fee of £2,820. You pay it by card in Connect when you submit, and it is not refunded if you withdraw or the application is refused. If your application covers only insurance distribution, the FCA must decide it within 3 months of receiving it complete. It must decide an incomplete application within 12 months of receiving it.

Ongoing compliance requirements

Once authorised, you must:

• SM&CR - comply with Senior Managers and Certification Regime
• Consumer Duty - deliver good outcomes for customers
• Financial crime - have AML and fraud prevention systems
• CPD - 15 hours minimum per year for relevant staff
• Reporting - submit regulatory returns via RegData
• PII renewal - maintain adequate cover continuously
• Capital maintenance - meet capital requirements at all times

Next steps

1. Decide route - direct authorisation or Appointed Representative
2. Determine permissions - what insurance activities will you conduct?
3. Arrange PII - get quotes and secure cover
4. Prepare application - business plan, governance, policies
5. Apply via FCA Connect - submit application with fee
6. Await determination - 6-12 months typical
7. Set up systems - complaints handling, disclosures, record-keeping