The government has told the ABI that insurers' claims handling departments will not come under further statutory regulation.
Sources predicted that the Department for Constitutional Affairs (DCA) would favour FSA regulations rather than Claims Management Company Regulator (CMCR) rules to avoid dual compliance procedures.
However, the government's move has now eased industry fears that this would be the case.
It is understood that the FSA has written to the ABI to confirm that its treating customers fairly principle applies to insurers which capture third party claims although the ABI said it was yet to receive such a letter.
However, the FSA denied that this meant that it is "tightening up" the rules on insurers which capture third party claims.
The watchdog said: "We are not changing anything. FSA regulation has been in place for almost two years and it relates to insurers and how they treat their policyholders."
One senior source responded: "The FSA has to tighten up its rules in this area and we fully expect them to act."
This is set to come under further scrutiny when the Law Society and the claims management regulator steps up regulation in their individual sectors.
A further source said: "Further FSA regulation shouldn't be necessary because Boleat [Mark Boleat, head of the CMCR] will begin to set up best practice standards at the same time as the Law Society.
"This best practice should filter through to insurers. What would be good to see is the FSA also issuing a paper and talking about third party practices."
