Brokers have reacted with anger to an FSA threat to force commission disclosure.

In a 'Dear CEO' letter issued to the market this week, the FSA said it would take a closer look at commission disclosure if intermediaries failed to show that they were improving their management of conflicts of interest.

Setting out the findings of an FSA investigation into conflicts of interest, the regulator said it would "assess whether there is a case to amend our policy for commercial customers to introduce the compulsory disclosure of commission".

The threat of commission disclosure represents a dramatic U-turn by the FSA. Speaking in April, FSA chief executive John Tiner said: "Full disclosure would not be a panacea, nor provide a safe harbour from the need to manage conflicts."

Brokers accused the FSA of threatening the livelihood of the high-street broker.

Terence Clark, Community Broking Group's compliance officer, said: "This will be an added pressure on smaller brokers. It could mean brokers are forced to drop business, and if they really need the money they could be forced to slit their own throats."

Chris Blackham, chief executive of Layton Blackham, slammed the FSA for "confusing and damaging the market again".

He said: "What the FSA is forgetting is the benefits of working on this [the current non-disclosure] model. It goes back to the same old argument - Tesco doesn't have to tell its customers how much it makes on a can of beans. Why should Tesco tell everybody how much it is earning on each product?"

Gary Dixon, managing director of Compliance Solutions, said: "It is clear that next year we will see compulsory disclosure of commissions. It is inevitable and the industry is not going to like it."

In the letter, the FSA said intermediaries had not "sufficiently" developed systems to manage conflicts of interest, and it would be looking into the issue in more detail in 2006.

Brokers have until 20 January to inform the FSA of the systems they have in place to handle conflicts.

The FSA said company boards must show they have reviewed the potential conflicts of interest to which they were exposed and make sure systems were installed to mitigate those conflicts.

What brokers should do to manage conflict
The FSA said firms had not sufficiently developed systems to manage conflicts of interest. Senior management should allocate responsibility for identifying and managing conflicts to accountable individuals.

Some firms considered conflicts to be solely about remuneration, and failed to identify the wider issues.

Firms should ensure conflicts of interest are considered when dealing with clients to comply with the FSA Treating Customers Fairly initiative. Staff should be given clear guidance on this subject.