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‘FSA has not already decided to ban commission’

FSA managing director Clive Briault has highlighted commission as one of the five priorities in the regulator’s forthcoming retail distribution review but stresses it has not concluded that commission is bad and should be banned.

At a Cazalet Consulting conference in London last week on the changing face of asset management in UK life and pensions, Briault said the five issues for the review are commission, sustainability, professionalism in the market, consumer access to financial services products and regulatory barriers and enablers. But he said the FSA is not an economic regulator and the impetus for change must come from the industry.

Briault echoed Sir Callum McCarthy’s recent comments that many life and pension companies operate unsustainable business models which may encourage churning. He hit out at City analysts for not asking sufficiently probing questions about life office profitability.

But he welcomed the fact that some insurers are stressing the importance of net business figures and said he supports the Association of British Insurers’ increased focus on in-force business. He said there are signs that some firms are moving away from reliance on initial commission towards different forms of remuneration.

Briault insisted that the FSA has not concluded that commission is inherently bad or that it should be banned and hinted that regulatory incentives rather than restrictions may be the way forward.

But he said previous studies have made it clear that commission levels cause provider bias and there is also clear evidence of product bias caused by varying commission levels.

Briault said the aim of the review, the results of which will be announced next July, is to understand how commission leads to consumer detriment through product bias and its impact on the sales process and competence of advisers.

He said working groups made up of industry members, stakeholders and FSA staff will be set up to look at solutions.

Briault said: “Let me stress we have not already concluded that commission is bad or that we should ban commission but are open to suggestions about alternative structures. In light of our own work and your solutions, it might be that we need to create regulatory incentives rather than regulatory restrictions.”


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