Insurance brokers will have to stop paying commission to leasehold managing agents, under new rules proposed by the Financial Conduct Authority (FCA).

The FCA is warning brokers that they will face action if they continue to pay ‘unfair’ commission to agents and freeholders.

“The rule changes would explicitly require insurance firms to act in leaseholders’ best interests, and bar firms from recommending a policy based on commission or remuneration levels,” the FCA says.

Insurers and brokers would also need to provide more information about insurance policies to leaseholders, including detail of any commission paid.

An FCA review commissioned by the Government found average broker commission rose by 46% over a three-and-a-half-year period.

“We expect brokers to immediately stop paying commissions to third parties … where they do not have appropriate justification and evidence for doing so in line with our rules on fair value,” the FCA says.

The Department for Levelling Up, Housing and Communities announced that it intends to ban the payment or sharing of insurance commissions with property managing agents, landlords and freeholders.

No hesitation

Sheldon Mills, executive director of consumers and competition at FCA, says: “Our review revealed large commissions paid by some brokers to freeholders and third parties, like managing agents, with little evidence of any value added to justify these payments.

We are taking action against these practices, and we won’t hesitate to take further action if brokers don’t comply with our rules.”

“We are taking action against these practices, and we won’t hesitate to take further action if brokers don’t comply with our rules.”

Andrew Bulmer, CEO of The Property Institute (TPI) which incorporates the Association of Residential Managing Agents (ARMA), says: “We welcome the work and scrutiny of the FCA through its consultation, having long called for transparency of fees and charges to help leaseholders to understand their buildings insurance policy, and be confident they are paying a fair price for the right cover to protect their homes.”