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City watchdog swoops on ?68bn insurance broking market

The City watchdog has turned its attention towards London's ?68bn insurance broking market following "significant changes" to the lucrative sector since its last probe a decade ago. 
Having proposed a swathe of new rules for the UK's funds industry over the summer, the Financial Conduct Authority said it is now scanning the insurance market for anti-competitive behaviour just as London fights to retain its status as a financial hub post-Brexit. 
Christopher Woolard, the FCA's executive director for strategy and competition, said the size and scale of the wholesale insurance sector "can have a wide-ranging impact on the broader economy" because businesses need appropriate cover in order to grow or even operate.
The regulator will look at whether any brokers possess too much market power, if there are any conflicts of interest within the sector and how certain tactics could damage competition. 
If it finds issues in any of the above, the FCA has the power to introduce new rules for the sector – which comprises Lloyd's of London as well as brokers such as Aon and Marsh – or refer issues to the UK competition watchdog for further investigation, as it did recently with the ?1.6 trillion investment consulting industry
City watchdog swoops on ?68bn insurance broking market

The exterior of Lloyd's of London, the centuries-old insurance market

Credit:
 BEN STANSALL/ AFP
Brokers typically act as middlemen by placing their clients with underwriters willing to take on the risk, but since the financial crisis they have looked to offset declining premiums by trying to make money in new areas such as data and analysis.  
This has triggered a rise in the number of services offered by the market which in turn has raised competition concerns, the FCA said in a 30-page document on Wednesday. 
"Larger brokers may be using their market power to oblige insurers to sign up to these facilities or pay for these wider services," it wrote, later saying that some of these services might be unnecessary.  
Flagging concerns over so-called facilities, where a broker asks underwriters to commit to a block of risks upfront, the FCA warned that firms might be pushing "to place business in facilities even where it may not be the best option for their clients since, in many cases, they receive enhanced remuneration for doing so". 
The FCA called for feedback from the industry and said it aims to publish the findings of its study next autumn. 
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