FSA to begin formal review of commission disclosure
The prospect of the FSA forcing brokers to disclose their commission took a step closer to becoming reality this week.
In a speech to the London market, FSA chief executive John Tiner said because of the "gridlock" in the market's attempt to improve transparency, it was time to take a more "objective and forensic look" at the possibility of mandatory commission disclosure.
Although he acknowledged that there had been some market solutions, such as Biba's and the LMBC's moves to add clauses to brokers' terms of business agreements, he said progress on market solutions had been slow.
"Having allowed the market the space and opportunity for a solution to emerge, because of the diametrically opposed incentives of both sides, it has become increasingly apparent that an agreed, industry-led solution is likely to be light years away," said Tiner.
A "detailed exploration" of the issues around commission disclosure will be highlighted as a priority in the FSA business plan for 2007/8. This will include an objective market failure analysis and a cost benefit analysis.
Tiner said this work would enable the FSA to gather evidence of the extent to which a lack of transparency was leading to customer detriment or impairing market efficiency.
But he insisted a regulatory solution would only be imposed if the benefits outweighed the costs of introducing it and if the market failed to come forward with an industry-led solution.
Biba regulation and compliance manager Steve White said Tiner's comments showed the FSA's frustration with the issue of transparency. "It is getting to the stage where it wants to have a proper look at it."
Eric Galbraith, Biba chief executive, said: "Biba and the LMBC is aware of the differing views in the market and have put forward a market solution, which we believe was welcomed by the FSA and all sectors. Biba is not aware of any consumer detriment or market inefficiencies.
"We have strongly supported the FSA's policy position, ie provided the potential conflict of interest that receiving commission generates is identified and managed and commission is disclosed upon request, the issue is adequately addressed."
A spokesman for Marsh said the company already provided clients with details of its earnings and that it believed the rest of the market should do likewise.
"We hope that the FSA will not have to mandate disclosure. But it is clear that the present position is unsustainable. The industry needs to act before the FSA forces it to."
