We were asked to advise a UK based broker on the grossing up of insurance premiums and whether they had a duty to report this to the Financial Services Authority (FSA) if it occurred. They had reviewed the FSA rules and could not see anything specifically governing such reporting or outlawing the practice of grossing up, although they believed that it could not be done.
We reviewed the law of agency, which forbids the making of an undisclosed profit, and advised on whether this applied. We also spoke to the FSA to obtain clarity on the position. The FSA confirmed that there was no provision to outlaw the practice but that grossing up breached the objective of clarity and transparency to clients, as it would not be possible to determine the split between the premium and what had been charged as commission. The details of these discussions were communicated to the client.
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