PB Week: The verdict on commission disclosure
Steve White, British Insurance Brokers' Association's head of compliance and training, explains this week's decision by the Financial Services Authority on commission disclosure
As an armchair fan of most ball-sports, I appreciate that most of these are easier to control if you have possession of the ball. This is an analogy that works nicely when considering this week’s Financial Services Authority’s Feedback Statement FS08/7 on disclosure, conflicts and transparency. The regulator has passed our sector the ball and put the game’s destiny in our own hands.
So, after many months of discussion, consultation, negotiation, sweat and toil, the FSA has announced that it will give the industry solution the chance to achieve its desired outcomes, in preference to writing more rules. This decision has been widely acclaimed in the broking sector as a proportionate and appropriate solution, along with a realisation that we are now drinking in the ‘last chance saloon. BIBA and its London Market Brokers’ Committee have been engaged with disclosure, conflicts of interest and transparency since the FSA first raised concerns back in 2005 and so the development of an ‘industry solution’ is the culmination of three years work.
The solution recognises, as do the FSA, that the issues are much broader than just the simple disclosure of commission. The FSA’s thematic work, coupled with its commercial customer research, leads the regulator to believe that firms ‘could do better’ when describing to commercial customers the services they provide and how these will be paid for. The industry solution will address four main areas where the FSA believe that firms could improve on the clarity of information they provide to commercial customers.
These are: 1. A greater prominence to the customer’s right to ask about remuneration; 2. A better description of the breadth of searching undertaken on the customer’s behalf; 3. A better description of the capacity in which the intermediary is acting; and 4. The existence of others in the distribution chain where firms utilise the services of others.
The industry solution will also give guidance on the identification and management of potential conflicts of interest. An industry solution places the ball back in our possession – it will be up to all of us to take the ingredients of the solution and turn them into ‘business as usual’.
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