A raft of conflict

You are referring to the 'Dear CEO' letter from the Financial Services Authority, dated 18 November.

You will also be aware that 'treating customers fairly' is at the forefront of the FSA's agenda. The two issues are inextricably linked.

It is vital that firms of all sizes address the issue of conflicts. In the view of the FSA, the process for identifying and mitigating conflicts is not sufficiently developed within firms. Within your own business, each area should be examined for potential conflicts and the process should be recorded, together with a note of the action to be taken and how this is to be monitored. The entire matter should be under the clear responsibility of one member of your board.

Areas in which the FSA has concerns include relationships with insurers. Concerns include arrangements for payment of profit or volume commissions and also where the intermediary acts as agent of the insurer in terms of policy issue and/or holds a claims-settling authority.

Is the issue raised with individual staff members so that they understand the concept and their own particular role?

Do you have any arrangements with insurers for 'soft' loans to enable you to make acquisitions? If so, is the availability dependent on a certain level of support for the insurer? If you do, you could be in a very dangerous area, in terms of being able to demonstrate that you are able to manage such a potential conflict.

The message from the FSA is quite clear. If the intermediary market does not grasp and satisfactorily deal with the issue of conflicts, then we will have more imposed upon us. Ironically, this is an area in which self-imposed regulation may stave off further close interest from the FSA.

Also on the FSA's radar is the suggestion that compulsory commission disclosure to commercial clients may be reviewed following further work in 2006.

While commercial intermediaries will say that there is no interest in this information from clients, it will be up to the community to evidence that sufficient safeguards and understanding of conflicts are in place, so that there is no need for further regulatory action.