FSA must protect all consumers under new general insurance regulation
The indications are that there will be many firms who might only have interim authorisation at the start date. But to the consumer, interim-authorised firms would look as if they are authorised — which normally carries certain guarantees of compensation — so there would be real and significant risks for consumers dealing with these firms, if that compensation were not there. The FSA Board did not allow those dealing with interim-authorised mortgage companies to have access to the compensation of the FSCS (Financial Services Compensation Scheme). If this situation were to arise again with General Insurance, the same mistakes must not be repeated. This is particularly as there are likely to be many more general insurance firms falling into this interim category, and there is more potential for consumer loss if things do go wrong.
The Consumer Panel recommended this approach for the interim-authorised mortgage firms, but the FSA Board did not agree to it. Not only that, but the FSA failed to prescribe how the interim firms should warn consumers that there would be no access to the compensation scheme, and has not checked what warnings are being given.
Ann Foster, Chairman of the Panel said: “The FSA is on the brink of a new era in extending its risk based regulation to general insurance. We believe that the FSA would be failing in its objective to protect consumers if some general insurance firms are granted interim authorisation, but the FSA does not give full access to the compensation scheme for consumers dealing with them. There are likely to be more firms and more people involved in general insurance than with mortgage interim firms. The FSA Board must act in the interests of all consumers. ”