Broker conflicts of interest - time for another look

It was in 2007/2008 that the FSA last investigated whether or not there was a case for intervention in the commercial insurance market and to require brokers to make disclosure of commission payments and other similar arrangements. It came out against introducing new ICOBS rules but there was subsequently  “ confirmed guidance” from BIBA  issued on transparency, disclosure and conflicts of interest.

Now in July 2013 comes formal confirmation from the FCA (the successor to the FSA)  that once again there will be an investigation into conflicts of interest. This will be done by way of a “thematic review” which will include taking evidence from customers, insurers, intermediaries, trade associations and through specially commissioned research. This will then result in due course in a discussion paper or a consultation paper from the FCA setting-out its finding and potentially outlining new regulatory proposals.

They will be examining in particular profit share, volume arrangements and other payments received from insurance companies and seeking to establish  whether the flow of this type of revenue from insurers to brokers acting as agent of a customer might:

  • unduly influence a broker to recommend an insurer against the customer’s best interest, and/or
  • cause a broker to improperly perform its duties to its customer.

Brokers and insurers should even at this early stage be aware  that in the course of looking at the information that it receives the FCA has in the past believed  that there may have been potentially breaches of its current rules and which has resulted in the brokers and insurers concerned being referred to the FCA Enforcement Division. This was the case for example in relation to several earlier thematic reviews. Therefore be alert to this possibility when faced either with a request for information directly from the FCA or when making submissions via market associations.

 

Jonathan Drake, Partner

Phone: +44 (0)20 7645 7980

Email: jdrake@clausen.com

 

 
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