Insurance red tape could tie up the Trade: FSA legislation could have implications for both auctioneers and antique dealers

The full implications of the legislation, due to come in next year, are as yet not understood by the major trade associations, but most dealers should not be affected.

Those who are, however, could find themselves having to fill out new application forms and having to hand over sometimes costly fees. Failure to comply, where necessary, will constitute a criminal offence.

The new powers of regulation in the insurance industry now held by the Financial Services Authority (FSA), the existing regulator of banks, insurance companies, stockbrokers, investment managers and financial advisors, were issued in response to the European Union’s Insurance Mediation Directive, to which all member countries must comply by January 15, 2005.

In the future, anybody who provides insurance services will need to be either approved by the FSA or approved by the appointed representative of a firm who is authorised by FSA. For firms that wish or need to be authorised, the costs can be substantial.

With the May 31 ‘first deadline’ for discounted applications long passed, a standard application for companies with an annual income of under £1m is £550; £2750 for those with a turnover of £1m-3m and £5375 for turnovers of £3m-25m. Undertaking ‘regulated activity’ without the FSA’s permission is a criminal offence punishable by up to two years in prison.

According to factsheets issued by the FSA, it is likely that you are partaking in a ‘regulated activity’ if you are:

• advising on the merits of buying or selling a contract of insurance;

• entering into a contract of insurance as agent for someone else (either a client or the insurer);

• arranging for someone to enter into a contract of insurance;

• assisting in the administration and performance of a contract of insurance.

But precisely who will be affected in the art and antiques trade is currently unclear, says loss adjuster Mark Dalrymple of Tyler & Co, who is also vice chairman of the arts and antiques faculty of the RICS. He expects to report soon on how members might be affected. A key point for clarification is whether or not auctioneers and shippers, who typically charge their customers for insurance of items waiting for sale, need to register fully or become a so-called Appointed Representative simply as acting as an agent for a registered insurance broker.

Time is of the essence. The FSA says that applications for authorisation in time for January should be submitted by July 13 if they are to guarantee that they are processed in time.

However, “don’t panic” is the advice from most quarters. At a meeting last Thursday, representatives of LAPADA and the BADA picked over the FSA literature to assess whether members would fall inside the regulatory perimeter.

Factsheet Eight of the FSA’s guide to the new regulations specifically lists jewellers and antique dealers among those who should be reading the document. They fall into the category of businesses whose activity does not relate to insurance but for whom offering/advising on insurance “constitutes an integral part of the core professional service they provide to their clients”.

Sarah Harvey, LAPADA chief executive, does not believe many dealers will be affected, although a leaflet inserted into the next issue of LAPADA News will recommend traders who insure clients’ goods to check their position with a lawyer.

A report commissioned by the FSA has suggested the UK general insurance sector was facing one-off compliance costs of £200m, with annual costs estimated at £165m – and average of £2.80 per policy a year.