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Cancellation crunch

From the first quarter of 2007 to the second quarter of 2008, FSA authorisations and cancellations were roughly in line with each other.

This trend has reversed since the second quarter of 2008 when cancellations started to outgrow authorisations, building to cancellations being three times the number of authorisations by the first quarter of 2009.

Over the past two years, quarterly FSA authorisations have been in overall decline, with authorisations falling by 59 per cent from 633 in Q1 2007 to only 257 authorisations by Q1 2009.

Q1 2008 was the only exception to this long-term trend when authorisations briefly increased from 403 firms in Q4 2007 to 431 firms in Q1 2008.

With the exception of Q2 2007, FSA cancellations have consistently exceeded authorisations in each quarter since Q1 2007.

While quarterly FSA authorisations have been in overall decline since Q1 2007, quarterly cancellations have grown by 86 per cent since Q2 2007 from 416 firms to 773 firms by Q1 2009.

Quarterly cancellations have materially exceeded authorisations since Q3 2008, with cancellations running at over double the number of authorisations per quarter increasing to over three times by Q1 2009.

Overall, the data reflects general economic conditions in the UK economy, with cancellations exceeding authorisations since mid-2008 being consistent with the spread of the economic contagion from financial services to the general economy.

FSA authorisation and cancellations by business sector

Q1 2009 saw the main authorisations for FSA firms in life insurance, financial advisory and general insurance together account for over 70 per cent of the 257 FSA authorisations for the quarter.

Material cancellations of FSA authorisations were in financial advisory and non financial services, mainly motor dealers.

Authorisations

The highest number of new FSA authorisations in Q1 2009, at 33 per cent of total authorisations for the quarter, was in life insurance. This was driven almost exclusively (81 of the 85) by newly authorised IFAs, including a number of IFAs previously indirectly authorised through an IFA network now seeking direct authorisation.

IFA networks, however, still account for a very significant number of indirectly authorised IFAs.

Financial advisory saw 65 new authorisations (25 per cent of total authorisations for Q1 2009) including 19 fund management businesses and 18 hedge fund managers, as well as a number of corporate finance (14) and private equity businesses (8).

This is consistent with individual departures from the bigger investment houses that have been affected by the credit crisis who are now setting up their own FSA-authorised entities.

Material cancellations include financial advisory, 16 fund managers and 11 hedge fund managers, as well as 19 general insurance cancellations, which have been driven in part by acquirers cancelling the authorisations of their target businesses post-acquisition.

The life insurance cancellations again relate to IFAs. A number of IFAs have been acquired by bigger organisations but the majority have ceased trading.

However, in a number of cases, while the IFA firm may no longer be trading, the IFAs themselves often move with their existing clients to another IFA.

The lending cancellations are largely represented by nine mortgage brokers’ authorisations. Given our understanding that a number of mortgage brokers have been thinly capitalised, we believe that others are likely to cancel their authorisations in the coming quarters.

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J Alan Campbell,

Inglenook FS

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