The UK Financial Services Authority (FSA) is continuing its review into broker remuneration but has decided against mandating commission disclosure for the time being.

FSA CEO Hector Sants says a “forensic market failure” and cost-benefit analysis carried out by CRA International concluded the costs of mandating commission disclosure outweigh the benefits.

“Given this research, we have therefore decided not to mandate commission disclosure at this stage,” he said.

But the regulator will continue to monitor transparency in the sector.

“We still have concerns around transparency and wider market efficiencies and will continue to keep the matter under review,” Mr Sants said.

British Insurance Brokers’ Association CEO Eric Galbraith has slammed the ongoing investigation.

“The FSA began this process nearly two years ago and we are frustrated that even after a forensic review which proved that the costs of mandatory disclosure fall disproportionately on smaller firms and exceed the benefits of disclosure, the FSA is still continuing to spend valuable time and resources on this matter,” he said. “We believe these resources would be better spent on other issues.”

Mr Sants says the FSA still has concerns about the potential conflict of interests, particularly in light of the EU investigation into the insurance market.

“The increased blurring of the distinction between insurers and intermediaries increases the need for conflicts of interests to be managed,” he said. “This is a concern that has also been raised by the European Commission following its recent inquiry into business insurance. On this basis we plan to consult with the industry early next year.”

Institute of Insurance Brokers Director-General Andrew Paddick welcomed the FSA’s decision.

“It is comforting to note that many of the problems which would result from a mandatory disclosure regime have been acknowledged,” he said. “However, we are mindful that FSA officials still have a number of concerns regarding a lack of transparency and we will be meeting with them in the new year in order to discuss ways of the market better interpreting and complying with existing rules, such as treating customers fairly and managing conflicts of interest.”

But Mr Paddick remains concerned about UK brokers being affected by inappropriate legislation designed for the European market, which operates via a system of tied agents.

“We must keep an eye on and dialogue with the EU Commission as the Insurance Mediation Directive comes up for review, because most European markets are largely insurer and tied agent controlled, which could result in proposals for change not favourable for independent brokers.”