The FSA may force commission disclosure upon the market.

The UK Financial Services Authority (FSA) has warned in an open letter to the CEOs of insurance brokers that it may be forced to take enforcement action if companies fail to adequately disclose commission payments.

The regulator reminded firms of their responsibilities under Insurance Conduct of Business Rule (ICOB) 4.6.1R to disclose promptly, if asked by a client, any commission received by the company or their associates for an insurance contract.

In the letter, the FSA disclosed a number of findings from a study conducted earlier in 2006. The regulator found that most intermediaries had included clauses in their terms of business agreements which reminded clients of their right to request information about commissions. However, few clients had actually requested commission disclosure and, as such, there was a widespread lack of formal processes among brokers as to what exactly would be disclosed to a commercial client in the event of a request.

The FSA went on to publish further guidance for meeting the requirements. These actions are aimed at helping firms comply with disclosure guidance and in revealing whether a lack of transparency is hindering market efficiency. This in turn, said the FSA, “will inform our thinking on the wider question of whether to mandate commission disclosure.”

The letter comes in the wake of a speech by CEO John Tiner, which hinted that the FSA was moving closer to mandating commission disclosure. Tiner said the FSA would take a more “objective and forensic look” at disclosures following “gridlock” in the market's attempts to improve transparency.