UK insurance regulator the Financial Services Authority (FSA) has warned general insurance brokers that disclosure of commission arrangements to corporate insurance buyers is likely to be required unless they improve the way they handle conflicts of interest.

A letter sent to all broker CEOs explains how after visiting 38 UK brokers the FSA has concluded “the process for identifying and mitigating conflicts of interest is not, in most firms, sufficiently developed at present”.

The letter details the responsibilities of senior management when it comes the identification of conflicts, and suggests that firms “often perceive conflicts of interest in too narrow a manner, and some firms consider conflicts to be solely about remuneration”.

“While avoiding conflicts is linked with observation of the duties of agency, intermediaries should also ensure that they consider the wider issue of dealing with clients in a manner that is fair and seen to be fair,” the letter said.

The FSA wants brokers to “review the current and potential conflicts to which their firms are exposed; put a formal conflicts policy in place or, where already in place, review it, with firms setting out clearly how they propose to mitigate the conflicts identified; and tell their FSA supervisory contact the outcome of the above steps by Friday 20 January 2006”.

Next year the FSA will carry out further investigation into the way conflicts of interest are managed by brokers and will assess “whether there is a case to amend our policy for commercial customers to introduce the compulsory disclosure of commission and, if so, whether to make this binding on both intermediaries and insurance companies”.