After the UK financial conduct authority (FCA) revealed last week that it was investigating a number of UK insurance and reinsurance aviation brokers over the sharing and misuse of competitive and sensitive information, Credit Suisse analysts have warned of increased global regulatory risk.
The FCA previously reported that it was investigating brokers Marsh, Aon, JLT, Willis Towers Watson, and UIB over the sharing of “competitively sensitive information,” leading the brokers in question to release statements revealing full cooperation with the FCA and its investigation.
In response to the FCA’s investigation into the practices of aviation brokers, Credit Suisse has said that it feels the financial risk of a penalty is low, but stressed the investigation itself could result in other probes on the business.
Credit Suisse estimates that the maximum fine that could levied against the brokers in question would be less than 1% of earnings per share (EPS) for the top three brokerages.
“A fine of this size would not be a significant financial burden on the businesses, however this investigation could open the brokers up to larger scoped investigations. Aviation is one of a number of lines of business where the number of brokers is heavily concentrated in the top several players,” said Credit Suisse.
Currently, the investigation by the FCA is confined to the UK and Europe, but Credit Suisse warns of risks of further investigations by the U.S.
“The FCA has powers to enforce EU and UK competition law, however there is risk that this concern could spread to other geographies. In the past, the large insurance brokers were investigated by the NY Attorney General, however that concerned the transparency of payments, not antitrust issues,” explained Credit Suisse.
Only time will tell what the investigation reveals and what, if any at all financial impact will be felt by the brokers in question. But for Credit Suisse the likelihood of any financial impact will be minimal and manageable for the firms, but it could lead to greater scrutiny in the industry, which increases the regulatory risk of global insurance brokers.
