FCA turns up the heat

The general insurance industry had better get used to the name Martin Wheatley. He is the chief executive of the Financial Conduct Authority (FCA), the new financial regulator set to replace the Financial Services Authority (FSA) in early 2013. As is the case of any regulator, it will be quick to stamp its authority on the financial services industry. Today, the former Hong Kong regulator put his flag in the sand after his plans to crack down on commission-led sales were revealed. Reports this morning claimed Wheatley will give a speech to the City tomorrow announcing that commission payments on all financial products will be severely curtailed under the new regulator. Wheatley is not planning an outright ban on commission for sales staff. He wants to ensure products are sold to consumers for the right reasons, rather than for financial gain.

His move follows a ban on commission payments to advisers under the Retail Distribution Review (RDR), which comes into force on 31 December. However, the industry shouldn’t expect changes overnight, as the RDR was the culmination of six years’ work.

It also comes hot on the heels of the payment protection insurance mis-selling scandal – for which the FSA was heavily criticised. Wheatley is expected to admit that the existing regulatory regime has let consumers down, but will stop short of blaming the FSA for recent scandals, such as PPI.

But it is clear that Wheatley sees commissions payments as one of the top causes for mis-selling in the past. This means firms may have to re-think how they reward sales staff.

The FCA plans to be a “more intrusive” regulator than the FSA and the early signs are it is already aiming to prove this. Wheatley’s outlined plans leave many unanswered questions for the GI market; will insurers, particularly those in the direct market, come under scrutiny over the sale of add-on products? Or will brokers with commission-led models face a hard time? The heat is well and truly on.