Disclosure is voluntary

The Financial Services Authority's Handbook of Rules and Guidance and the consultation and policy papers that preceded them have produced many column metres of debate in the trade press.

Perhaps the single issue that has attracted and continues to attract the most attention is the issue of transparency of an intermediary's income and the use of inducements.

The issue, as we see it, has three distinct parts: the disclosure of commissions; the use of contingent commissions, profit shares, volume overriders, etc.; and conflict-of-interest management.

The FSA recently confirmed that it has revisited its policy decisions on the disclosure of commissions and is not proposing any changes at this stage. However, if as a result of its supervision work it concludes that the logic behind its decisions is flawed, it is likely to undertake consultation on rule revisions.

There have been several recent press articles on the subject of disclosure, including comments from the Association of Insurers and Risk Managers and Lloyd's on transparency. While the FSA rules do not require full transparency as a matter of course, it goes without saying that full disclosure is required upon the request of the customer. The issue of hard disclosure needs to also be viewed from a level-playing-field perspective. If direct insurers were required to disclose their acquisition costs then hard disclosure may have more appeal.

It is becoming apparent that a number of intermediaries are deciding to voluntarily disclose all earnings on a proactive rather than reactive basis. By the same token, commercial enterprises seeking a complete picture of their intermediary's earnings need only request this. A bond of trust between broker and customer is the foundation upon which the commercial insurance industry rests; honest and open communication between broker and client is the best way to ensure that bond is not frayed or broken.

Contingent commissions and overriders/profit commissions are neither illegal nor improper. They have been a standard feature of the commercial insurance market place for many years and are linked to a variety of services provided by the broker or intermediary.

The new regulatory regime has caused many firms to revisit their procedures and processes. The British Insurance Brokers' Association is aware of and has encouraged its members to actively revisit the procedures they have in place to manage any conflicts of interest that might arise in dealing with a customer's insurances.

The pragmatic and proportionate approach taken by the FSA in respect of contingent commissions, volume and profit shares is one that BIBA both sought and applauds. BIBA will work with all sections of the industry to deal with this issue, but primarily it is now up to firms themselves to demonstrate that the logic behind the FSA's policy decisions is sound.