Understanding the FCA’s commission disclosure regulations in multi-occupancy buildings insurance

Michael Keating, CEO of the Managing General Agents’ Association, on the need for MGAs to take a forward-looking approach to the disclosure challenge.

The recent spotlight on secret commissions in multi-occupancy buildings insurance has exposed significant issues around transparency and fairness for leaseholders. In response, the UK Financial Conduct Authority introduced new rules in December 2023, requiring insurance firms to disclose commission details to leaseholders.

As this issue continues to unfold, insurance firms, brokers and MGAs must stay ahead of evolving regulations to preserve not only their reputations but also the integrity of the broader insurance market.

The commission system in place within multi-occupancy buildings insurance has been under scrutiny. The FCA’s new rules are designed to empower consumers and ensure that leaseholders are not left in the dark about how their service charges are being spent.

By requiring insurers to provide commission details on request, the regulation seeks to ensure that insurance practices are fair and transparent.

Following the FCA’s high-profile review of the multi-occupancy buildings insurance market, questions arose about whether the new rules, which mandate brokers to disclose remuneration information to customers, also apply to MGAs.

The FCA’s definition of an “insurance intermediary” does not explicitly differentiate between brokers and MGAs, leading many to question whether MGAs, too, are subject to these requirements.

In seeking clarity, we engaged directly with the FCA to understand whether MGAs, acting as agents of insurers, are bound by the same disclosure obligations.

The FCA responded with important clarification: the commission disclosure requirements under ICOBS 6A.7 apply specifically to insurance brokers that place multi-occupancy buildings insurance policies, not to MGAs distributing those policies on behalf of insurers.

In the FCA's view, the remuneration tied to the placement of the insurance is the responsibility of the broker, and MGAs, when acting as agents for insurers, are not required to disclose their earnings related to work transfer. This clarification strictly applies where there is a broker between the MGA and the client.

This clarification brings much-needed certainty, but it also highlights the complexity of the regulatory frameworks that govern insurance distribution. While the FCA’s clarification covers most cases, MGAs should remain vigilant.

There may be unique or nuanced situations where the rules may not apply as expected. In these cases, it is crucial for MGAs to seek professional advice to ensure compliance with the letter and spirit of the regulations.

As the industry adapts to evolving regulations, staying informed and ahead of potential issues will be critical. MGAs should focus on understanding the intricacies of commission and fee disclosures, ensuring that their business models align with the regulations, and identifying any grey areas in their operations.

By engaging proactively with the regulatory environment, MGAs can avoid costly missteps and continue to play a pivotal role in distributing multi-occupancy buildings insurance. Understanding and navigating the intricacies of these regulations requires a proactive, informed approach.

Being proactive in navigating these regulations is not just about compliance – it is about maintaining the trust of clients, regulators and the public.

MGAs that take a forward-thinking approach to understanding and adhering to these rules will not only avoid legal pitfalls but also help foster a more transparent and ethical insurance market. This is essential, not only for the immediate challenges posed by commission disclosures but also for the broader reputation of the insurance industry as a whole.

Michael Keating is CEO of the Managing General Agents’ Association.