Biba urges action after FCA probe warns about risk of brokers putting their own interests ahead of customers
Brokers must prove their innocence when it comes to conflicts of interests, Biba warns.
The trade body is now urging brokers to collect evidence to prove they can manage conflicts of interest in their business in the wake of the FCA’s thematic review.
The probe’s findings, released yesterday, will worry insurance brokers.
The review concluded that control frameworks had not developed in line with the growing complexity of distribution chains, in which brokers increasingly act as both the agent of the customer and the insurer in the same transaction.
If the risks are not properly managed, the regulator said it was concerned that small businesses could lose out as brokers put their own interests ahead their customers’.
Although the conclusions were based on the FCA’s probe of the UK’s seven largest SME brokers, it said that the findings applied to all brokers.
Biba head of compliance and training David Sparkes said: “If brokers can follow the guidance on conflicts of interest and transparency they won’t go far wrong. A lot of it is around disclosure and making sure the client understands, for example, whether you are going to one market or a panel of insurers.
“It is not that the brokers weren’t doing it – they just probably weren’t as good as they could have been in providing the evidence that they had done it.
“The FCA just didn’t find the evidence to support what the broker was able to tell them about how they worked.”
Sparkes said because the review concentrated on a small sample of seven large brokers it may be less relevant to smaller firms.
He said: “It is very important to point out that it was only seven out of 3,500 that they looked at. Those firms have a particular kind of business model that it is probably not replicated elsewhere.
“On top of that the FCA did not find a consistent issue even amongst that small number of firms.
“But there are some basic generic messages we can take out to the wider broking community. It is never a bad thing for firms in the wider broking community to periodically review their practices to ensure they remain fit for purpose.”
Biba will now work with the regulator to find out what needs to be done to clarify disclosure requirements and help brokers to present information to clients in a way they will understand.