Britain's Financial Services Authority (FSA) warned insurance brokers yesterday that it might force them to disclose the fees they get from insurers unless they improve their management of conflicts of interest.

In a letter to chief executive officers, the FSA said a study of 38 firms showed that brokers were not handling conflicts of interest effectively. The regulator also said it would examine next year whether it should insist that brokers tell their commercial customers whether they are being paid commissions by insurers to place business with them.

"We do not believe that there is currently a quantifiable market failure in this area which requires regulatory intervention," the FSA wrote in the letter, published on its website.

"However, our view is clearly linked to how much we are able to rely on the rigour of conflicts management processes within intermediary firms."

Mandatory disclosure of broker fees would be a U-turn for the FSA, which took over regulation of the general insurance sector this year and had resisted calls from the Lloyd's of London insurance market and corporate buyers of insurance for full transparency of commissions. Under current rules, brokers need disclose the commissions they are paid by insurers only if asked to do so by a client. In its review, the FSA discovered that few clients request this disclosure.

The biggest UK brokers include Benfield Group Ltd and Jardine Lloyd Thompson Group Plc.

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