Retail Authorization Canceled By FSA

The duties of the Financial Services Authority (FSA) include protecting motorists from harmful financial practices. It was recently announced that the FSA revoked the authorization of a popular auto retailer due to the company’s insufficient capital resources.

This decision alarmed some within the industry, leading several key players to voice concern that other retailers may quickly follow.

In this recent case, 4Front Car Sales was the business who had its authorization revoked. The FSA previously approved and regulated the company for retail selling of basic insurance products to individuals who have car finance arrangements.

Holding client money was something the FSA permitted 4Front to do as long as the practice pertained to the sale of general insurance products.

However, there was a caveat to this approval to hold client funds: a minimum capital requirement applied. The level of this requirement was not based on the nature of the business. Money was kept in a non-statutory trust account by 4Front, which required at least £50,000 in capital due to the additional inherent risk factors.

The retailer was unable to meet the requirement and reported this fact to the FSA. The result was FSA revocation of the permission to sell general insurance.

The auto industry is coming out of a difficult period and auto retailers are being held to stricter standards. If other retailers are also unable to meet their capital resource requirements, they may find their

authorization revoked.

The FSA is not going to run the risk of having to bail out these retailers if they experience insolvency.

Consumers who have car loans should pay attention to the current happenings in the industry. If they are approached by a retailer whose authorization has been revoked, they should immediately report the incident. People can never be too careful when they are spending money on products like insurance.