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UK investigates two insurers over banned sales commissions

The logo of the new Financial Conduct Authority (FCA) is seen at the agency's headquarters in the Canary Wharf business district of London April 1, 2013. REUTERS/Chris Helgren

LONDON (Reuters) - Britain's financial regulator is investigating whether two life insurance companies breached new rules that ban the offering of commissions to financial advisors for selling their products.

The Financial Conduct Authority (FCA) said on Wednesday it had referred two unnamed firms to its enforcement division in the latest clamp-down on the financial sector, which has been tarnished by mis-selling and interest rate-rigging scandals.

The new rules aim to protect consumers by ensuring that advisers recommend suitable products, without bias, rather than promote ones that earn commissions.

The FCA has stepped up enforcement since it was created in April in an attempt to create a "credible deterrent" to wrongdoing with bigger fines and product bans while pursuing cases against firms and individuals.

The FCA said it had recently uncovered potential breaches of the Retail Distribution Review - introduced this year to avert further mis-selling scandals.

"Most (of) the firms involved ... have already made changes, which are welcome, but we want all firms in this market to review and, if necessary revise their existing arrangements," said Clive Adamson, the FCA's director of supervision.

"We will revisit this area in the future to check that the necessary improvements have been made."

The FCA said some life insurers were spending more on support services, such as research or management information, provided by independent advisors, which could amount to inducements.

It also identified a number of joint ventures between product providers and financial advisers that could lead to "biased advice".

With its review, the FCA also launched a consultation on its guidance to firms on inducements and conflicts of interest.

The Association of British Insurers (ABI) industry body called for more clarity on rules governing partnerships.

"Today's publication is a good start but we do believe that more clarity regarding FCA expectations in this area would be helpful in some areas, particularly around initiatives such as joint ventures," said Maggie Craig, Director of Financial Conduct Regulation at the ABI.

Britain's insurers manage investments of 1.8 trillion pounds ($2.9 trillion), equivalent to 26 percent of the UK's total net worth, according to the ABI.

British politicians may also take a fresh look at the Retail Distribution Review amid criticism that the new model results in fewer people having access to independent financial advice.

In the absence of commissions, financial advisers must instead charge a fee for consultations and other services which low and middle income families are likely to shun.

HSBC, Barclays, Lloyds, Royal Bank of Scotland and Santander UK have cut 4,000 advisers in the past two years after changing business models to adapt to the new system.

They have reduced the advice on offer or changed their fee structures - such as by charging an upfront fee of 500 pounds or 1,000 pounds - or restricted giving advice to customers with 50,000 pounds or more to invest. ($1 = 0.6288 British pounds)

(Reporting by Chris Vellacott; Editing by Kirstin Ridley and Anthony Barker)