Financial Services Authority Cancels Retails Authorisation

Apr 21 2011

As most car finance buyers are probably aware, part of the responsibility of the FSA (Financial Services Authority) is to protect motorists against dangerous financial practices.  The news that the FSA has revoked the authorisation of a well-known car retailer because the company had insufficient capital resources will, therefore, not come as a big surprise to many motorists.

The Authority's decision has, however, caused some alarm in the industry and several industry players have issued their concern that others might soon follow.

The business involved in this case is 4Front Car Sales.  The company was approved by the FSA (and regulated by them) to retail general insurance products to car finance buyers.

The company was also permitted by the Authority to hold client money as long as this was related to the selling of general insurance products.

This permission, however, came with certain minimum capital requirements.  It seems that 4Front failed to meet these capital requirements and informed the FSA about this fact themselves.

This is what led to the FSA's decision to revoke 4Front's mandate to sell general insurance to car finance customers.

Alliance Consultancy's Group Compliance Manager, Lorraine Tromans, made the following comment: ìUnder FSA rules an authorised firm must maintain adequate financial resources in order to meet its liabilities as they fall due.

She added that the level of capital requirement was independent of the nature of such business.

In 4Front Car Sales' case the company had permission to keep money belonging to clients.  Since they kept this money in a non-statutory trust account, which carried additional risk factors, the capital requirement was £50,000.  4Front failed to meet this requirement.

Author - Louise Hutchinson
 

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