FSA warn brokers of potential fee disclosure

The Financial Services Authority (FSA) recently announced it may force insurance brokers to disclose the fees they get from insurers unless they significantly improve the way they manage their conflicts of interest.
The FSA sent a letter to chief executives quoting a study of 38 firms that indicated brokers were not handling conflicts of interest effectively and that their processes for identifying and dealing with conflicts of interest were not sufficient.
“We do not believe that there is currently a quantifiable market failure in this area which requires regulatory intervention,” the FSA writes. “However, our view is clearly linked to how much we are able to rely on the rigour of conflicts management processes within intermediary firms.”
The regulator has given senior management until January 20 to review the conflicts they face and put in place a formal policy to deal with them.
The FSA’s letter to ceo’s also stated that next year the regulator may begin to demand that brokers tell their commercial customers whether they are being paid commissions by insurers to place business with them.
Under current rules, brokers only have to disclose the commissions pay them if a client requests this information but, upon review, the FSA discovered very few clients request this disclosure.
Just this year the FSA took over regulation of the general insurance sector and originally the regulator resisted demands for full transparency of commissions.
The FSA intends to continue its probes into conflicts of interest in insurance broking as part of a wider review that will initiate in April 2006. Once this study is concluded the regulator will make a decision regarding mandatory disclosure of fees.