Prudential Regulation Authority Rulebook

This chapter explains how we will supervise small mortgage and insurance intermediaries.

We first described our approach to regulation in A New Regulator for the New Millennium, which we published in January 2000. We have continued to explain our progress and any new developments in our approach to regulation in a number of subsequent progress reports.

We have four statutory objectives which enable us to prioritise our efforts and focus on the most significant risks we face as a financial services regulator.

The FSA's four statutory objectives are:

1.	Maintaining confidence in the financial system;
2.	Promoting public understanding of the financial system;
3.	Securing the appropriate degree of protection for consumers; and
4.	Reducing the extent to which it is possible for a regulated business to be used for a purpose connected with financial crime.

In setting our regulatory priorities, we assess the risks posed to our objectives by the firms we regulate. We quantify the risks posed by individual firms, taking into account the effect of factors such as prevailing market risk, product risk, and most importantly, customer risk. All risks identified are measured in terms of their severity if they occur (their impact) and the probability of their occurrence. The outcomes of this process are used in deciding how to supervise each authorised firm.

A small firm with a basic business model, a local retail client base, low turnover and no recent history of regulatory problems is likely to be low impact and its regulatory relationship with us will reflect this. These firms will not have a dedicated FSA relationship manager but will be able to deal with us online or via a dedicated contact centre. In the case of small insurance and mortgage intermediaries, details of these services will be available on our website before regulation begins.

An important part of the monitoring of low impact firms is the receipt and monitoring of data returns and other notifications. Firms will send us regulatory data required under the Handbook (e.g. the RMAR - see Part 1, Chapter 11) that we monitor to identify potential breaches of regulatory requirements. We are unlikely to carry out routine visits to these firms. Instead, we may make visits in response to risks identified from regulatory data or other information sources. In addition, the firm or its business may be covered from time to time by our sector-wide projects (thematic work) to monitor compliance standards and investigate cross-industry risks.

We have developed a supervision strategy for small firms which includes the elements above. Its primary focus is on mitigating the risk posed to our objectives by financial and compliance failures by a substantial number of low impact firms within a sector. Although individually small firms are low impact, collectively the impact of these firms may be much greater.

The overall strategy includes:

Where a firm is non-compliant, we will take enforcement action where we consider that is appropriate. Where firms show a lack of awareness of regulations we will try to help these firms to help themselves, for example, by providing regular guidance updates on our website and by means of a 'good practice guide'. We will also encourage these firms to increase their level of training and to make use of trade associations, product providers, auditors and consultants.

Where a firm is compliant, we will try to help it maintain high standards. Such a firm provides a benchmark of good practice that can be spread more widely within the total population of firms.

The following chapters of this Guide are also relevant: