FSA still to decide on compulsory disclosure of insurance brokers' commission

The FSA has been considering whether to change its rules to make brokers disclose to their business customers the commission they receive from insurers, but it postponed making a decision last December after an independent study questioned whether disclosure alone could be justified on cost-benefit grounds.

The study carried out for the FSA by CRA International estimated the cost of mandatory disclosure at £87 million with ongoing costs of £34 million a year. It said that as few as 10% of commercial clients are likely to be adversely affected by non-disclosure.

The FSA has now said that it has wider concerns about market inefficiencies and will be carrying out further work on disclosure, conflicts of interest and raising commercial customer awareness.

The announcement was made in the FSA's latest Business Plan, published this week. A discussion paper is planned for the first quarter of 2008 and the FSA says that it will consult on any necessary changes to the FSA Handbook in the early autumn, with a view to publishing final rules in early 2009.

The European Commission highlighted broker remuneration as an area of concern last year. Its business insurance sector final report questioned whether disclosure alone is enough to deal with potential conflicts of interest between broker and client. The Commission promises to follow up its findings in its planned review of the Insurance Mediation Directive in 2008-9.