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The FSA honeymoon is over

It’s been a little over 12 months since the FSA regulations came into force. The financial body promoted them as a tool for helping consumers get a fair deal, but at the same time pointed out the opportunities they offered to motor retailers.

But with more than 9,000 pages of rules and regulations and up to 40 pages of updates published daily, there is no denying the paperwork and bureaucracy involved. Many dealers say this is one of the biggest hurdles to overcome. It’s not a case of not wanting to comply – instead they claim the problem is lack of a clear understanding of the rules.

And now a new RMI survey suggests that half of compliant dealers believe FSA has given little or no benefit in relation to the cost. The RMI puts the annual cost of compliance at £4,600 on average. It claims that 75% of dealers make insurance sales of less than £20,000 a year, with around 20% selling just £1,000.

“Many dealers are questioning the business sense of remaining in the insurance market,” says the RMI’s Louise Wallis. “If nothing is done to ease the burden we could see dealers leave the insurance market in significant numbers.”

FSA to focus on key shortcomings

The FSA, meanwhile, is starting to clamp down on approved dealers failing to fully comply with the new rules. It is planning a series of investigations in April to check compliancy levels have improved.

The authority has already stated that “urgent action” will be taken to ensure selling practices for payment protection insurance (PPI) are in line with regulatory requirements and it also intends to focus on the sale of inappropriate products and poor customer advice which it sees as key shortcomings.

“In 2006 we look to the learning curve of 2005 to have been largely absorbed and we look forward to it being a year of higher compliance by the industry as a whole,” says Robin Gordon-Walker of the FSA.

Dealers that fail the compliancy test, will be named and shamed via the FSA website and on company records.

#AM_ART_SPLIT# Ready to take ‘appropriate action’

“Each case will be treated on its own merits and our approach is very much towards working with firms to help them improve their compliance. But where a firm is deliberately ignoring regulatory requirements or the breaches are particularly flagrant we will be ready to take appropriate action and this could lead to enforcement,” adds Gordon-Walker.

The FSA’s effectiveness review of ICOB (the insurance conduct of business) will include, as a key element, consumer research into disclosure documents and advice along with selling standards. The review will investigate the effectiveness of the regimes, focusing initially on how far the FSA conduct of business requirements are delivering the intended outcomes for consumers.

“There are more than 4,000 motor retail businesses registered with the FSA, so dealers are well and truly on its radar,” says Stephanie Murdoch, managing director of FSA specialist Auto Network.

“We would recommend that dealerships review their current practices against the FSA rules and the issues it has identified. Shortfalls and any remedial action should be implemented as a matter of urgency as the FSA has made a very clear warning of its intent to take action,” adds Murdoch.

Industry experts agree that most dealers are complying or at the very least have entered into the ‘spirit’ of compliance. But where they may be going wrong is in the way compliancy, finance and insurance, and sales are so disconnected.

“Compliance is often seen as something to get out of the way to enable the car sale to proceed,” says Stephen Whitton, vehicle sales business unit manager at consultancy and training group Carter & Carter.

FSA can boost car sales

“Ironically, with a thorough understanding of the requirements for compliance, in the showroom and not just at a senior level, it can be used to aid the sale of vehicles, promote a better image and definitely increase the sale of finance and insurance products,” adds Whitton.

In contrast to the RMI’s findings, Whitton claims that some dealers have doubled their insurance sales performance, especially on GAP insurance, since the regulations came into force. One of the FSA’s objectives is to ensure customers are given the right protection but the opportunity for retailers is to offer every single customer the insurance products that are appropriate for them.

“Imagine the effect on car sales if we go through a structured process of qualification and customer data capture with every enquiry,” says Whitton. “Can every dealer principal honestly say that every sales person properly qualifies every customers every time – and then offers all appropriate products to every customer who has a need for them?”

According to Carter & Carter, several dealers and manufacturers with which it is working are selling more cars and insurance as a result of the regulations, because they are now focusing on key areas and taking action to address shortfalls.

The FSA says there is no magic or mystery to compliance. The top line is to keep it simple, understand what is required, train and equip your staff to be compliant, manage and supervise them, properly qualify customers and professionally demonstrate appropriate products to consumers in a logical fashion.

Retailers must control their ARs

The FSA has called for an improvement by retail networks in their supervision of appointed representatives (ARs). The move comes on the back of a survey which found a number of possible shortcomings in areas such as the level of compliance resource in principal companies along with the quality of desk checks and field visits to check ARs’ compliance.

In response the FSA has published a fact sheet suggesting how networks can improve practice in three main areas – compliance and the approach taken to supervising ARs, admission to membership, documented procedures and management information.

“We expect networks to apply appropriate controls on their ARs so that these firms maintain the same standards as directly authorised firms in their dealings with customers,” says Alison Hewitt, head of the FSA’s retail firms division department.

“Our emphasis at this stage is to help networks improve and the fact sheet is designed to help achieve this. However we will be carrying out further work next year to monitor the position and will take appropriate action where concerns remain.”

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