Understanding FCA Requirements for Conflicts of Interest in Financial Services: Regulatory Expectations and Best Practices
Updated: 6 days ago
Conflicts of interest remain a significant regulatory concern for firms operating in financial services, particularly in the insurance and reinsurance sectors. The Financial Conduct Authority (FCA) has reinforced its expectations on identifying, managing, and mitigating conflicts of interest to ensure fair treatment of customers and uphold market integrity. This article explores the key sources of conflict, relevant regulatory guidance, and practical steps firms can take to mitigate risks effectively.
Understanding Conflicts of Interest
A conflict of interest arises when a firm or individual has competing obligations or personal interests that could influence their professional judgment or decision-making. In the financial services industry, these conflicts often stem from:
Personal financial interests in transactions
Relationships with third parties, including clients and suppliers
Inappropriate incentives that may compromise objectivity
Dual roles or responsibilities that create undue influence, such as a compliance officer who also serves as a sales manager or a financial advisor who recommends products in which they have a financial stake.
Regulators, including the FCA, expect firms to address these conflicts to maintain transparency and protect consumers from potential harm.
Regulatory Framework
FCA’s SYSC 10 – Conflicts of Interest
The FCA Handbook’s Senior Management Arrangements, Systems, and Controls (SYSC) 10 sets out rules for firms to identify and manage conflicts of interest. Key requirements include:
Implementing written policies to identify conflicts of interest
Maintaining a register of identified conflicts
Disclosing conflicts to clients where mitigation is not possible
Reviewing policies regularly and ensuring staff receive training to maintain effectiveness (SYSC 10 Handbook)
Finalised Guidance FG19/05
The FCA’s FG19/05 provides further clarification on conflicts of interest, particularly in firms’ incentive structures. The guidance emphasises:
The need for robust governance frameworks: This should include policies, registers, training, and board-level oversight to ensure conflicts are managed effectively.
The importance of independent oversight: Such as engaging external consultants, appointing non-executive directors (NEDs), or having a designated compliance function to monitor conflicts objectively.
Proactive monitoring of conflicts: Firms should ensure active monitoring by having compliance or risk officers present during key meetings, maintaining well-documented minutes, and conducting periodic reviews to identify emerging conflicts. (FG19/05 Guidance)
Lessons from Enforcement Actions
The FCA has taken enforcement action against firms and individuals who fail to manage conflicts of interest effectively. A notable case involved Angela Burns, a former non-executive director who was banned and fined for failing to disclose conflicts relating to her financial interests (FCA’s press release). Additionally, the FCA has highlighted concerns in the commercial insurance intermediary sector, particularly in its thematic review TR14/9, which found that firms were not adequately managing conflicts arising from remuneration structures and relationships with insurers (FCA’s thematic review). Further, the FCA has issued calls for better conflict management in the insurance distribution sector to prevent potential consumer harm (FCA’s statement).
Insurance Broker Remuneration: Roles, Disclosure and Conflicts
Commission, profit sharing and volume incentives can create a conflict when an insurance broker recommends where to place a customer's business. Understanding the broker's role is therefore essential. The Supreme Court's motor finance judgment, delivered on 1 August 2025, examined fiduciary duties in the particular dealer–customer relationships before it; it did not introduce a new insurance commission rule or settle the position of every insurance broker.
For a broker, the assessment must consider its actual undertakings and the circumstances of the relationship, including its terms of business and what it has told the customer. Contractual, tortious, fiduciary and regulatory obligations need separate consideration. Completing the FCA disclosure requirements does not, by itself, resolve every question about the broker's duties.
For business subject to ICOBS, the existing ICOBS 4.3 requirements require an insurance intermediary to explain the nature of its remuneration and whether it works for a customer fee, commission included in the premium, another economic benefit, or a combination. This information must reach the customer in good time before the initial insurance contract and, where necessary, on amendment or renewal. Contingent remuneration is included. Where a fee is payable, disclose its amount before the customer becomes liable to pay it or the insurance contract is concluded, whichever happens first; if an amount cannot be given, explain how it is calculated.
For commercial customers, ICOBS 4.4 additionally requires prompt disclosure, on request, of the commission received by the intermediary and any associate in connection with the policy. Give a cash amount, estimated if necessary, in writing or another durable medium; where that is not possible, provide the calculation basis. The accompanying guidance includes profit sharing, volume payments and remuneration for arranging premium finance. It also confirms that this disclosure rule applies whether or not the intermediary acts as the customer's agent and is additional to general-law fiduciary obligations.
RRCA's practical starting point is to compare the placement record with the remuneration arrangements and the information actually given to the customer. In a hypothetical commercial placement, a broker recommends an insurer while receiving ordinary commission and a potential volume bonus, but the customer documents mention only commission. The reviewer should establish what the broker promised to do, how the bonus was described, when disclosure reached the customer, and why the recommended cover met the customer's needs. Check any request for commission information against the response and the underlying payment arrangements.
If the disclosure omits a relevant benefit or arrived too late, correct the process and assess the affected files. If the placement rationale or the broker's legal role is unclear, investigate that issue separately; a revised disclosure sentence alone will not establish that the conflict was properly managed.
Best Practices for Mitigating Conflicts of Interest
1. Establish a Conflict of Interest Policy
A clear and comprehensive policy should outline:
Procedures for identifying conflicts
Steps for mitigating or managing them
Requirements for disclosure where mitigation is not feasible
How firms can use structured documentation, including a Conflict of Interest Register, to track and manage conflicts effectively
To support firms in this process, we are offering a Free Conflict of Interest Policy Template that provides a comprehensive framework to help businesses establish strong compliance policies.
2. Conduct Regular Risk Assessments
Firms should regularly review their business models and client relationships to identify potential conflicts. This includes:
Assessing incentive structures
Reviewing third-party relationships
Monitoring staff roles and responsibilities
3. Implement Independent Oversight
An independent function or committee overseeing conflicts of interest management can strengthen governance. This may involve:
A compliance officer or team monitoring conflicts
An independent board member reviewing key decisions
External consultants conducting periodic reviews
4. Enhance Transparency and Disclosure
Where conflicts cannot be avoided, firms must disclose them to affected parties in a clear and understandable manner. This includes:
Communicating the nature of the conflict
Explaining measures taken to mitigate risks
Allowing clients to make informed decisions
5. Train Employees on Ethical Conduct
Regular training ensures staff can identify and respond to conflicts appropriately. Training should cover:
FCA’s regulatory expectations
Real-world case studies
The importance of ethical decision-making
Best practices for mitigating conflicts in daily operations
6. Monitor and Review Policies
Firms should periodically review their conflict of interest policies to ensure they remain effective. This can involve:
Conducting internal audits
Gathering feedback from staff and stakeholders
Updating policies based on regulatory developments
Keeping detailed records of conflicts and resolutions is crucial for ensuring compliance and accountability. Firms should maintain a structured Conflicts of Interest (CoI) Register that documents identified conflicts, the parties involved, steps to mitigate the conflict, and any disclosures.
To assist firms in implementing best practices, we are offering a Free Conflict of Interest Register. This ready-to-use tool helps businesses align with regulatory expectations and effectively track conflicts.
Conclusion
Managing conflicts of interest is essential to maintaining regulatory compliance and customer trust. Firms that fail to address conflicts effectively risk financial penalties, reputational damage, and regulatory intervention.
By implementing strong governance, transparent policies, and robust monitoring frameworks, firms can comply with FCA expectations and foster a culture of integrity and accountability.
For further guidance, firms can refer to the FCA’s latest expectations on conflicts of interest management or contact us.
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