U.K. regulator to do further study on mandating commission disclosure

The United Kingdo’s financial services regulator, the Financial Services Authority (FSA), says it wants to take more time to consider “possible inefficiencies in the commercial general insurance market” before making a decision on whether to mandate commission disclosure.
Under the FSA’s current rules, a commercial insurance broker must disclose commission information if the client requests it.
In March 2007 the FSA commissioned CRA International (CRA) to conduct a forensic market failure and cost benefit analysis into whether commission disclosure should be made mandatory (i.e. regardless of whether or not the client requests it).
“The subsequent research did not find that the benefits from mandating disclosure alone would equal or surpass the costs,” the FSA said in an online posting on its web site. “However, CRA found a lack of transparency in commissions paid to intermediaries in the commercial general insurance market which gives rise to market imperfections.”
For example, the FSA further noted, “many medium-sized customers do not know how much commission they pay.”
The FSA said its work in 2008 would focus on:
Measures aimed at improving the quality, clarity and consistency of key disclosures made by firms to their commercial customers. This would include disclosures relating to commission, status, service and conflicts of interest.
Thematic work on conflicts of interest. This would consider the extent and nature of conflicts that arise from commission paid by insurers to intermediaries.
The publication of a discussion paper inviting views on the cost-benefit analysis of mandatory disclosure. This would take into account questions on the wider issues of market efficiency and fairness, along with the potential benefits from having more standardized disclosures.
Finally, the FSA said it would also be investigating ways to raise commercial customers’ awareness of the value of commission information disclosed by intermediaries.