The review was launched by the FCA following concerns that “larger brokers may be using their market power” to oblige (re)insurers to sign up to facilities or pay for additional services in exchange for seeing business.

The review was launched by the FCA following concerns that “larger brokers may be using their market power” to oblige (re)insurers to sign up to facilities or pay for additional services in exchange for seeing business.

London brokers lobby FCA to relax "impossible" wholesale review deadline

11th December 2017

The largest London Market wholesale brokers are lobbying the U.K regulator to ease the deadline to respond to a detailed scrutiny of practices relating to market facilities, commission arrangements and relationships with (re)insurers.

Last week, Reinsurance revealed that the Financial Conduct Authority (FCA) had written to broking firms with a detailed questionnaire following the launch of a formal Market Study prompted by complaints from insurers that they faced.

But late last week, the CEOs of the targeted firms were being encouraged by their trade body London & International Insurance Brokers' Association (LIIBA), to ask for the FCA to extend the deadline to 30 June 2018.

"At the LIIBA Board it was agreed that it would be almost impossible for most brokers to comply with the proposed timetable to complete the data request by 9 February 2018," explained the 8 December circular.

LIIBA continued: "This is primarily due to pressures from the end of year renewal season, the Christmas break, the introduction of the GDPR, the introduction of a new regime following IDD, the arrival of Brexit and the forthcoming SMCR, all of which are already putting an unreasonable burden on overstretched Compliance and Human Resources".

LIIBA - which is headed by Christopher Croft - said it would also lobby at the "highest level" for the regulator to extend the deadline while also reassuring that it would reiterate its members willingness to comply "give a reasonable time to do so".

LIIBA also suggested its members might benefit from meeting with the regulator to ensure clarification "on a number of the questions which otherwise could result in the FCA receiving “mixed” or confused messages".

Although there are over a hundred different brokers operating in the London market, LIIBA estimated that around 50 brokers and underwriters received the FCA request for information.

Finally, LIIBA reminds its members to be mindful that the FCA review could be passed on to the Competition and Markets Authority - which has greater powers of enforcement - so "particular care should be taken" with answering the questions.

Last week’s RFI was the first move by the regulator since its 30-page terms of reference was published on 8 November.

The review was launched by the FCA following concerns that “larger brokers may be using their market power” to oblige (re)insurers to sign up to facilities or pay for additional services in exchange for seeing business.

While facilities - in the form of line slips and contingent commissions - have long been a feature of the London market, they have become increasingly widespread since the emergence of Aon’s Lloyd’s QS sidecar with Berkshire Hathaway in 2013.

Since then, most of the major wholesale brokers have unveiled facilities - including Willis360 and Marsh’s colour coded initiatives - which provide (re)insurers with preferred carrier status in exchange for additional commissions or additional fees for certain services.

The regulator outlined that the purpose of the study is primarily to “look at how competition is working and whether it could be made to work better in the interests of end clients”. It noted that it is “not intended to be an assessment of firms’ behaviours against competition law. However, if we do uncover breaches we will take action as appropriate.”
 
“We have heard concerns about pay-to-play, with insurers who are not participating in some services offered by brokers, either by purchasing their services or being included in these facilities, struggling to obtain business from brokers in the open market”, explained the FCA last month.
 
Reinsurance will also come under the scope of the study both through facultative cover – which has many similar characteristics to direct risk business – and so-called reinsurance tying.
 
“Some stakeholders have raised concern that, in order to place a risk with an insurer, some brokers may insist on any reinsurance from that insurer being placed with the same broker."
 
The FCA added: “We will consider the extent to which this tying is leading to placements outside of the client’s best interests."
 
The regulator has said it aims to publish an interim report in the autumn of 2018 that will set out its “analysis, preliminary conclusions and any potential solutions to address concerns".
 
It is unclear what impact the requested deadline extension will have on the FCA’s proposed timetable if it is granted.
 
Some brokers have privately expressed concerns that the FCA’s study may be too narrow and ought to consider London’s wholesale market in the context of other global centres and the role facilities can perform a valuable role in funnelling more overseas business into London by reducing the frictional distribution costs. re