Two Routes to Direct Authorisation

Either way, the FCA must be satisfied that the firm meets the threshold conditions: suitable people, adequate resources, effective supervision and a viable business model. Our guide to appointed representatives explains the AR model, and going directly authorised covers advice firms leaving networks.

The Senior Managers a Broker Needs

Most directly authorised brokers are Core firms under the Senior Managers and Certification Regime. A typical structure:

Sole traders, and firms whose main business isn’t insurance distribution, may fall into the Limited Scope category instead; see SMF29 explained. Our guide to which SMFs apply at which firm tier sets out the full picture.

Each Senior Manager needs a Form A, a Statement of Responsibilities and the fit and proper evidence behind them, submitted alongside the firm’s application. Staff in some customer-facing and management roles may need certifying by the firm; see the Certification Regime.

Financial Requirements

Brokers must hold capital under the FCA’s prudential rules for insurance intermediaries in MIPRU. The requirement is the higher of a fixed minimum and a percentage of annual income from insurance distribution:

Brokers must also hold professional indemnity insurance meeting the minimum limits in MIPRU 3. In practice the FCA will also want to see enough cash to fund the business until it breaks even, and a credible wind-down plan. Check the current figures in the Handbook and the RMAR guidance when you build your projections.

Client Money: Decide Early

Many new brokers start without holding client money, using risk transfer agreements with insurers or arranging for premiums to go direct. Others need a client money account from day one. The choice affects capital, systems, the annual CASS audit and the experience your compliance officer and finance lead need. See CASS 5 client money for insurance intermediaries.

The Application

Applications are made through FCA Connect. A strong broker application usually includes:

• a regulatory business plan: lines of business, customers, distribution, insurer relationships, projections and risks;
• Form A for each Senior Manager, with Statements of Responsibilities and, where needed, a responsibilities map;
• compliance and financial crime policies, including complaints, conflicts, product governance, Consumer Duty and vulnerable customers;
• a compliance monitoring plan; see compliance monitoring plan template;
• capital calculations, financial projections and evidence of professional indemnity cover;
• details of any appointed representatives and how they will be overseen; and
• arrangements for training and competence under the Insurance Distribution Directive, including at least 15 hours of professional training a year for relevant staff.

Under section 55V of FSMA, the FCA has six months to decide a complete application and twelve months for an incomplete one. Gaps in people or governance are among the most common reasons an application is treated as incomplete.

The Order to Build the Team

Allow several months before submission to put this in place. Experienced compliance officers often have notice periods; fractional candidates can usually start sooner. See the authorisation journey.

Leaving a Network

An AR leaving a network loses more than its principal’s permissions. The network typically provided compliance oversight, file checking, training, complaints handling, financial promotions approval and regulatory reporting. All of that has to be replaced before the firm can operate on its own, and the FCA will want to see it in place. Plan the exit with the network early, agree how open business and complaints will be handled, and line up the compliance officer before giving notice. Many former ARs use a fractional compliance officer in the first year and review the arrangement as the firm settles.

Common Mistakes

• Leaving the compliance officer until late, so policies are written by consultants and nobody in the firm can explain them
• Assuming an MLRO is needed, or not needed, without checking which products the firm will arrange
• Underestimating capital and cash needs, especially where client money will be held
• Generic Statements of Responsibilities; see what goes wrong in Form A submissions
• Relying on a consultancy for compliance with no approved individual accountable; see outsourced compliance officer

Frequently Asked Questions

Which Senior Managers does a new broker need?

Usually an SMF1 or SMF3 for the directors and an SMF16 compliance officer. An SMF17 MLRO is usually needed only if the firm arranges life or investment-related insurance.

How much capital does an insurance broker need?

The higher of a fixed minimum (£5,000, or £10,000 with client money, or £50,000 under a non-statutory trust) and 2.5% or 5% of relevant annual income.

How long does FCA authorisation take?

The FCA has six months to decide a complete application and twelve months for an incomplete one.

Can the compliance officer be fractional?

Yes. Many new brokers use a fractional SMF16, provided the time is enough for the firm’s risks.

What does a network provide that we will need to replace?

Usually compliance oversight, file checking, training, complaints handling, financial promotions approval and regulatory reporting.