FSA starts conflicts-of-interest countdown

This time last year, brokers awaited the switch-on of regulation under the Financial Services Authority and the fallout from Eliot Spitzer's crusade in the US. One year on, while still awaiting comprehensive feedback from Arrow visits, the roots of a recently sent 'dear CEO' letter on conflicts of interest from the FSA can be traced back to Spitzer. The regulator had little choice but to take up the concerns raised by Spitzer and this letter is the result. The fact that it was published in the Financial Times can be taken as an indication of how keen the regulator is to underline its importance, but also to be seen to be addressing the issue.

The FSA, by this, has put the ball firmly in the market's court and incentivised it with a veiled threat that it may take matters into its own hands - by amending existing policy and introducing the compulsory disclosure of commission. While this is likely to upset brokers, with complaints resurfacing about discrepancies between the less onerous obligations placed on direct sellers, the threat should nevertheless be taken seriously. While some have cynically speculated that compulsory disclosure is now inevitable, this ignores the opportunity brokers have now. Whether or not the FSA is making empty threats, it intends to bring in draconian measures or will wait and see, it is clear that it wants firms to review current and potential conflicts of interest, to establish a formal conflicts policy and to report back by 20 January.

But this must be balanced by another deliberately high-profile FSA mouthpiece in the form of Andrew Honey, head of insurance, small firms division. He has gone on record many times in the second half of this year to stress that those that can demonstrate they are making every effort to comply are not the type to be singled out for enforcement action (see Management Clinic, p15). Also, during PB's Broker Management Forum in August, he said: "We do not actually believe that commission disclosure to retail customers would act as consumer protection because it would not necessarily help the customer make a better choice of product."

So, while some reaction from brokers is understandable, time should not be wasted crying over spilt milk as getting on with it is the only defence that will wash with the FSA.