Regulation is rearing its - some say ugly - head and will affect marine industry providers of both insurance and finance.

The Ethiopians in the timber stack are the Financial Services Authority (FSA) and the Consumer Credit Act (CCA).

The former will affect the insurance industry, the latter the finance side of things. But there will, of course, be some overlaps here and there.

While the finance side of the industry has generally relied on marine departments of the big clearing banks, the insurance industry has favoured using local agents to introduce new business, handle referrals and generally act as local contacts for the larger providers. Many boatyards and dealers make varying amounts of extra money by conducting some part-time insurance deals.

Some make more than a little extra on the side.

But all this is going to change in 2005 when new regulations drawn up by the FSA come into force.

This will, says Denovo's John Dodd, change the face of the marine insurance industry.

"From January 15 next year, " said Dodd, "you will not be allowed to trade in, discuss, market, present or show yourself in any way to be dealing with insurance unless you are a registered and approved body or person with the Financial Services Authority."

The reason for all this is, says the FSA, to help the consumer deal with an industry that has had its ups and downs over the years. The highly publicised cases of financial services providers mis-selling various products has given the insurance industry a bad name:

too often the insurance salesman has been seen as the fly-by-night operator who grabs the premiums and runs without a thought for whether the best product for the job has been sold.

Non-life products So the insurance industry will welcome the new regulations - that affect all non-life products - as a way of getting some credibility for their industry.

Joe Field, marketing manager for Navigators & General, confirmed: "The main emphasis of the FSA regulations is better service for the consumer."

And Tim Coghlan of Braunceston Marina said plainly: "It will mean the disappearance of the 'grab the premiums and run' type of insurance salesman."

Under the FSA regulations there will be three categories of insurance salesmen: fully authorised; appointed representatives (AR) and introducer appointed representatives (IAR).

Those companies for which selling insurance is the main business will have only two real options: they either become fully authorised, or stop trading.

The fully authorised route means lots of extra work, with compliance and training being the two biggest headaches.

Compliance is a Big Deal in financial dealings: big companies have big compliance departments working full time on ensuring the company keeps the right side of the law in its dealings. And those marine insurers that take the authorised route will have to handle compliance issues.

"We are - like all big insurers - becoming authorised, " said Field. "It's a lot of work for everyone, but we're part of the Zurich Group and they have a big compliance department that will make life easier for us."

We've been working on all this all year, he added. It's been a huge project and involves a lot of resources from Zurich.

Denovo will also become fully authorised. "In the main, the insurance brokers will all register, " said Dodd. "Some won't and will go out of business."

In-house Dodd says his company will handle compliance issues inhouse. "We'll just sit down and talk things through, then make sure we take the right actions at the right times."

Training will be bought in when necessary, says Dodd.

But compliance and training don't only affect the companies going down the fully authorised route.

The next level of selling insurance is the AR, which will cover those companies that don't count selling insurance as their main business, but which have a good level of business with a constant stream of new business and renewals.

They will need to become an appointed representative of a fully authorised company.

Braunceston Marina is one company that will become an AR. It specialises in inland waterways boats. "We've been going for 16 years now and have about 700 narrowboats insured through Navigators & General, " Coghlan told BB.

Being an AR is a strange inbetween role: the company has to jump through the same compliance and training hoops as the fully authorised company. But it has the shelter of its principal.

And this means that, for the principal, having AR companies is also very onerous.

This is because the principal has to assume full responsibility for the AR to the FSA. In the FSA's own words: the provider has to ensure its AR is "fit and proper" to deal with clients; its AR must be able to deliver the same level of protection to clients as if the client had dealt with the principal itself; it has to ensure its AR is solvent, suitable and without close links which would be likely to prevent the effective supervision of it by the principal.

What this all means in reality is the principal has to have more or less complete control over its AR. And this is likely to make firms think twice about chasing the thought of becoming an AR.

"My bet is there will be almost no appointed representatives, " said Dodd. "The provider has complete responsibility for everything the AR does and says, in spite of the fact that the AR is not under the provider's management control."

Formal contract We also have to have a formal contract - whatever type of arrangement we come to, he added. And that has to entitle the provider, as principal, to examine the AR's financial records.

"You can imagine what will happen if I go to one of my appointed representatives and ask to see their accounts and say to them in addition to your audit, I want my auditors to do it as well. You can imagine what they would say. But I have to do that because the FSA says I must."

But all this hasn't put Coghlan off becoming an AR.

"I'm the only AR on the inland waterways, " said Coghlan. "And we're very flattered that N&G asked us to become their AR."

Compliance and training holds no worries for Coghlan.

"Compliance is not completely up to N&G, " he said, "but it's back to basics for me because I had all this compliance stuff when I was in the City."

And on training, Coghlan says all four of the Braunceston staff who deal with insurance will have to go off and take some examinations. "I'm not sure which exams, but we have to go back to school."

The third type of insurance seller is the introducer appointed representative. And this is where the majority of current marine trade part time insurance sales companies will probably find themselves: it's Hobson's Choice - they either become an IAR or they have to stop selling insurance.

But those who choose to become an IAR will face severe restrictions on precisely what they can and can't do.

And what they can't do is offer advice or recommendations to someone who wants to buy insurance.

Leaflets or proposals All the IAR can do is offer a leaflet or proposal form with their company stamp on it.

They can give details of a few insurance companies, but cannot suggest any one will suit the proposer better than any other.

If the potential client is in the IAR's office, the IAR could telephone an insurance provider and then hand the telephone to the potential client to talk direct with the provider.

To give insurance advice, you now need to be registered, to be trained to deal with various types of insurance products and to have the examinations behind you to prove you know what you are talking about.

The main problem with this is that many small boatbuilders and dealers have been used to offering some friendly advice. "Up until now they've been able to advise on the insurance, help with the proposals, obtain quotes and in some cases collect money, " said Field. "Anyone who is going to become an introducer will not be able to do this."

As a result, it seems many companies will simply go out of business, perhaps finding the income they can generate may not be in line with previous levels.

"I think a lot of smaller agents are going to disappear - and in particular boatyards that have had insurance company agencies for years, " said David Brett of Marine & General, which is opting for the fully authorised route.

"They're the ones that will be most affected because they won't be able to give their friendly advice any more. They are going to have to ask their insurer to take their account on a direct basis, or talk to a local broker and see if they want to take the account over."

But Field says all is not lost for the IAR. "Historically people have always given advice and helped with quotations, but they can't do that any more. It will be difficult for them not to give advice. It will be tough for them, " he said, "and his income may reduce if he doesn't bring in as much new business as he did before.

"Some of our agents have been with us for 20 or 25 years, handling renewals and collecting premiums, " said Field. "It's the parting of along relationship for both of us, but that's legislation - it's not optional. We see it as an opportunity to ensure we're giving our agents better support than the other companies so they have the best equipment to carry on selling insurance within the law."

CCA ruffling feathers The finance houses, on the whole, don't deal in insurance so have nothing to fear from the FSA. However, the CCA is ruffling feathers. But this seems to be mainly because they don't yet know the full extent of the changes scheduled.

"We don't know what the changes are going to be yet, " said Peter Whitehead, national marine manager at Bank of Scotland Marine Finance. "We have working parties in the bank sitting on various committees as we speak."

But, he added, it appears every single credit agreement is going to be regulated. So if we lend someone £750,000 on a large boat, that transaction will be fully covered by the CCA.

"Right now the bank is joint and severally liable with the dealer, which means if the dealer fails, the bank has to come in."

But Whitehead says BoS may have to take notice of Section 75 of the act. "Section 75 relates to merchantable quality, " he told us. "So if there's anything wrong with the boat, if it's not satisfied by the dealer, if the customer is protected by the act we may become embroiled in the whole situation."

On the business front, Whitehead says the market is a bit different to last year. "With the government trying to control house prices and people's borrowing, that has inevitably had an impact. We are certainly not as busy as we were last year - but that was, of course, a record year for us."

Whitehead thinks people are being educated by the interest rate hikes and reckons there will be a couple more before the end of the year, "but I don't really see it as a cause for concern".

But the CCA changes, according to James Crew at Barclays Marine Finance, will bring major changes to documentation The providers will have to send out pre-contract documentation so the customer can see what the next lot of documents are going to look like before they get them.

These documents will contain information such as APR and the headline terms of the agreement, but the important point is they have to get to the customer before the main documents to give the customer a consideration period before the main documents arrive later.

The documents also have to illustrate the costs of early settlement over different periods through the term.

Currently, two sets of documents are required. Any paperwork on loans under £25k requires the APR to be show, while documentation for loans over £25k do not require the APR to be shown.

One set of documents "What it will mean is we have one set of documentation that will include the APR, " said Crew.

"Whether we're lending £500,000 or £5,000, the documentation will roughly be the same."

Crew says Barclays is doing rather well this year. "I'm pleased because we're ahead of where we were this time last year, " he told us.

He said Barclays was seeing less and less of the under £15k loans, but this is mainly because they aren't chasing that level of loan very hard.

"We're not moving away from that market, but it's more cost effective to go after the big deals, " he said. There's so much competition in the £10k and up market, he added, mentioning both Tesco and Sainsbury's Bank.

Crew says the company is seeing a shift away from traditional media as the means of obtaining referrals for new business. And the shift is towards the Internet.

"Business is growing from our own barclays. co. uk website, " he told us. "It started at about 4% and it's now at 12% of our referrals."

At present, said Crew, for business referral the dealer to us is still king. The future of Internet business will be interesting.